Dependency, Neoliberalism and Globalization in Latin America

Dependency, Neoliberalism and Globalization in Latin America
Carlos Eduardo Martins - 978-90-04-41554-6

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Dependency, Neoliberalism and
Globalization in Latin America
By
Carlos Eduardo Martins
Translated by
Jacob Lagnado
leiden | boston

This book is a revised edition of a work first published in 2011 as Globalização, dependência e neoliberalismo
na América Latina by Boitempo Editorial, São Paulo, Brazil.
Cover illustration: Ronaldo Alves
Library of Congress Cataloging-in-Publication Data
Names: Martins, Carlos Eduardo, author.

Title: Dependency, neoliberalism and globalization in Latin America / by
Carlos Eduardo Martins ; translated by Jacob Lagnado.
Other titles: Globalização, dependência e neoliberalismo na América Latina. English
Description: Leiden ; Boston : Brill, [2020] | Series: Studies in critical social sciences, 1877–2110 ; volume 150 |
Includes bibliographical references and index.
Identifiers: LCCN 2019040084 (print) | LCCN 2019040085 (ebook) | ISBN
9789004355415 (hardback ; alk. paper) | ISBN 9789004415546 (ebook)
Subjects: LCSH: Globalization--Latin America. | Latin America--Dependency on foreign countries. | Latin
America--Economic conditions--21st century.
Classification: LCC HC125 .M327813 2020 (print) | LCC HC125 (ebook) | DDC
303.48/28--dc23
LC record available at https://lccn.loc.gov/2019040084
LC ebook record available at https://lccn.loc.gov/2019040085
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ISSN 1877-2110
ISBN 978-90-04-35541-5 (hardback)
ISBN 978-90-04-41554-6 (e-book)
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For Joana das Flores Duarte, my companion in dreams and struggles.

Contents
Foreword ix
Theotonio Dos Santos
Preface to the English Edition xii
Translator’s Acknowledgement xxiii
List of Figures xxiv
Prologue xxv
Adrián Sotelo Valencia
Introduction 1
1 Social Sciences and the Challenges of Globalization 4

1 The Global Fog and Visions of Globalization 4
2 Theoretical and Methodological Premises
of a Critical Analysis of Globalization 10
3 For an Antisystemic Theory of Globalization 17
2 The Modern World System and Capitalism: Origins,

Cycles and Secularity 26
1 The Modern World System and Its Origins 26
2 The Modern World System and Capitalist Development 35
3 Kondratiev Cycles 71
4 The Tendency of the Rate of Profit to Fall 87
3 Globalization and the Crisis of the Modern World System 97

1 Globalization and the Techno-scientific Revolution 97
2 The Political Economy of Globalization 101
3 The Crisis of Surplus Value Realisation 113
4 The Political Economy of Globalisation: Drawing Up the
Balance 119
5 The Crisis of the Modern World System 123
6 The Crisis of the Modern World System and Its
Dimensions 133
7 Alternatives to the Modern World System 144
4 The Impasses of US Hegemony: 21st Century Perspectives 152

1 US Hegemony at the Crossroads: Main Theses 152
2 The Hegemonic Crisis and Its Empirical Basis 155

viii Contents
3 Hegemonic Crisis and Its Military Dimension 171

4 The Impasses of US Foreign Policy 174
5 US Hegemony: the Theoretical Debate 183
5 Dependency and Development in the Modern World System 196

1 The Development Question: Past and Present 196
2 National-developmentalism and Modernisation Theories 197
3 Theories of Dependency 211
4 Endogenism, Neo-developmentalism and Neoliberalism 240
5 World System Theories and Dependency Revisited 248
6 Drawing a Balance 253
6 Revisiting the Political Economy of Dependency in the

Light of Marx and Contemporary Capitalism 257
1 Marini and the Political Economy of Dependent
Capitalism 257
2 Critiques and Debates 261
3 Reformulating the Political Economy of Dependency 266
7 Latin America: Dependency, Neoliberalism and New Patterns of

Development 279
1 New Patterns of Dependency in Latin America 282
2 Neoliberalism and the Economic Cycle in Latin America 286
3 The Balance of Payments and Limits to Growth 293
4 Intensified Labour Super-exploitation 301
5 Ecological Decline 304
6 Towards a New Pattern of Regional Development 306
8 Conclusion 312
Bibliography 319
Index 344

Foreword
Theotonio Dos Santos
In Dependency, Neoliberalism and Globalization in Latin America, Carlos Edu-

ardo Martins takes three highly topical concepts at the centre of contemporary
social thought and unpacks them with exemplary theoretical rigour. His analy-
sis is framed around an in-depth discussion of the crisis of the modern world
system. Taking Immanuel Wallerstein’s study of historical capitalism as a start-
ing point, the author shows that we cannot fully understand capitalism by
defining it purely as a mode of production. Marx did so in an earlier era, suc-
cessfully, because its historical constitution largely determines key elements of
the social, economic and political system that make up its very essence.
The modern world system is one such historical element. It was first estab-
lished in the 16th century when Spanish and Portuguese navigators financed
by Genoa incorporated the Americas into global trade circuits and opened up
hitherto Arab-controlled trade with the East. But the system was only properly
consolidated by the European balance of power ushered in by Holland in the
17th century and subsequently by British global hegemony. The Industrial Rev-
olution played its part too, helping to integrate the capitalist mode of produc-
tion with the material base that would furnish the modern world system with
the means to conquer the entire planet.
Each of these periods was characterised by a cyclical movement rigorously
studied by Fernand Braudel and by Wallerstein over the four volumes of The
Modern World-System. This cyclical movement would become a single world
system. This notwithstanding, there has yet to be a proper examination of the
new world cycle that emerged after World War II under the hegemony of the
global financial, monetary and geopolitical system set up by a victorious Unit-
ed States and its allies.
In the present work, Martins provides a well-documented overview of the
analyses of long cycles proposed by both Wallerstein and Giovanni Arrighi,
each of whom describes how a hegemonic power establishes itself in the pe-
ripheral and semi-peripheral zones of the world system. Crucially, the a pproach
taken by Martins highlights the need for a secular perspective to explain cur-
rent conjunctures and their powerful consequences. We can thus see how the
globalization process takes on a far more concrete meaning when situated
within the broader context of the formation of the modern world-system.
Martins further brings a key explanatory device to his understanding of
globalization: the role of the techno-scientific revolution in the qualitative

x Foreword
changes that produced the different phenomena encapsulated by such a broad

concept. His work examines various approaches to globalization, notably the
following:
– The globalist interpretation that sees globalization as a completely new re-
ality and object of analysis for the social sciences involving new actors
(global businesses and the global market) which subjugate national states,
and a new technological paradigm that could provide the basis for a deter-
ritorialised world system.
– Theories of shared hegemony, which assert that whilst the microelectronic
revolution has produced a greater degree of internationalisation it has not
stopped national states from playing a core role.
– The neo-developmentalist approach that views globalization as an essen-
tially financial phenomenon rooted in the global integration of financial
markets which impose themselves on production. The real problem accord-
ing to this theory is that financial capital will have to free productive capital
in order to revive economic development and national states, which are
uniquely capable of concentrating the formidable resources required to
guide development over the course of the techno-scientific revolution.
– World-system theorists that identify a single global system. Some take the
view that there is a secular continuity to this single system whilst others
emphasise its discontinuities as it evolves over long-term cycles.
– Dependency theory that despite its historical relationship with world-
systems theory sees globalization as a period of crisis of a capitalist mode of
production which has paradoxically incorporated the techno-scientific rev-
olution at the same time as driving the law of value towards the limits of its
global development and its supersession.
The detailed description of these currents alone represents a major contri-
bution towards a systematic understanding of an issue hitherto mired in con-
fusion. But the author goes much further and provides a painstaking analysis
of the nature of the crisis afflicting the world system and US hegemony – a
crisis which is so often called into question but is so evident when studied from
a historical perspective.
His conclusions regarding the issue of hegemony and what the 21st Century
holds then allows Martins to open up a whole new chapter in the history of
social ideas by looking at the connections between dependency theory and
world-systems theory. This is an area that I myself have examined in A teoría da
dependência: balanço e perspectivas (Dependency Theory: Balance and Per-
spectives) and in my contribution to the UNESCO e-book dedicated to Imman-
uel Wallerstein. However, Martins brings new elements to this theoretical and
analytical continuity that can be found in Los retos de la globalizacion: ensayos

Foreword xi
en homenaje a Theotonio Dos Santos (The Challenges of Globalization: Essays

in Honour of Theotonio Dos Santos).
I believe that readers of the present book will agree that this is a vital work
that stands to become a classic of Latin American social sciences, especially as
the region is now crying out for a solid theoretical basis for its increasingly
popular progressive policies.

Preface to the English Edition
Dependency, Neoliberalism and Globalization in Latin America was first pub-

lished seven years ago in Latin America. It seeks to articulate Marxist depen-
dency theory with world-systems analysis and thereby contribute towards a
Marxist theory of the modern world system capable of analysing the three the-
matic axes referred to in the title, especially with respect to Latin America. We
have substantially updated this English edition and completely reworked
Chapter six. The passage of time also provides the distance we need to take
stock of its theses in light of current conjunctural dynamics.
The book’s first main thesis is that our analysis of conjonctures (‘conjunc-
tures’ or cyclical phases) should proceed from the specific ways in which
structural and cyclical time combine in the longue durée. The contemporary
period should be understood in terms of the articulation of three key move-
ments: the techno-scientific revolution, the B-phase of the systemic cycle of
US hegemony and the A-phase of the post-1994 Kondratiev cycle. We argue
that their combination heralds a period of civilisational crisis in the capitalist
world system. It is a conjunctural crisis linked to the crisis of the world system’s
mode of production, which has been contained by the high growth rates in the
world economy guaranteed by the current Kondratiev A-phase. The A-phase’s
exhaustion in upcoming years is likely to open the way to a period of systemic
chaos. Unlike other such periods such as in 1618–48, 1792–1815 and 1914–45, this
one will call into question not only the modern world system’s hegemonic cen-
tre but also its very foundations, signalling a period of transition to a new sys-
tem, which will have to be built in the heat of deep social conflicts between
bifurcating powers. Socialism and fascism can be expected to assume leading
roles in these conflicts, hastening the decline of political liberalism as a cen-
trist force.
We can see typically a combination of factors at play in a period of systemic
chaos: the hegemonic decline of political liberalism, an upsurge in armed con-
flicts in the world system, and the collapse of the dominant monetary stan-
dard. But while all the signs suggest that we are heading towards such a period,
we disagree with Giovanni Arrighi’s proposition in Adam Smith in Beijing
(2007) that the systemic chaos began with George W. Bush’s response to 9/11,
which led to the hawks dominating US government, the Patriot Act, the doc-
trine of pre-emptive action and the invasions of Iraq and Afghanistan. For Ar-
righi, that is when hegemony started to fall apart, giving way to a new period of
domination without hegemony. At a world system level, Bush’s victory actually
turned out to be rather limited and never really threatened global political

Preface to the English Edition xiii
liberalism. Whilst he was in power, so too was New Labour in Britain (until
2010) and the SPD in Germany (until 2005). This period was succeeded by the
election victories of Barack Obama (2008, 2012) and François Hollande (2012),
who relaunched the social democratic Third Way offensive. The Bush adminis-
tration mostly kept within the parameters of neoliberal globalization, pushing
free trade agreements and Chinese membership of the WTO, although it did
engage to some degree in military imperialism and the economic annexation
of the Middle East and South Asia.
However, since the mid-2010s, the neoliberal globalization process that be-
gan in 1979 and was driven forth politically from 1994 by alternating govern-
ments of the neoliberal right and the Third Way centre-left has been showing
signs of exhaustion. Falling global growth figures indicate it can no longer miti-
gate the sharp rise in accumulated levels of inequality by containing or limit-
ing poverty. This has meant the accelerated decline of its driving forces. The
end of political liberalism and centrism has initially benefitted the far right,
whose alternative to liberal globalization is an internationalisation based
on the political power of the State, the US state in particular, which comes
across as more immediate and powerful than the left’s alternative. The domi-
nant versions of social democracy cling to abstract universalist formulas and
fear breaking with their concrete neoliberal expressions, while some of the
national-popular experiences have been isolated by capital flight, financial
blockade at the hands of the Atlanticist powers, and the restructuring of US
imperialism in order to confront the nationalisation of strategic resources
such as Venezuelan oil. Political setbacks in Brazil and South Africa have so far
restricted the potential of the BRICS to articulate the global South and offer a
geopolitical alternative to the world hegemony of the United States and its
chief allies. Nonetheless, the powerful dynamics of the Chinese, Indian and
Russian economies now occupy the spaces vacated by American unilateralism,
expanding their Silk Road, Asia-Pacific and Global South projects in the pro-
cess. Intensified social struggle in Latin America and Africa in the years ahead
could change the political makeup of those regions and strengthen the BRICS
again. In the coming systemic chaos, class struggle is poised to determine the
geopolitical potentialities of the different power blocs, with intrastate conflict
heavily conditioning interstate conflict and international alliances.
Through the Trump administration, an ascendant US right sought to weap-
onize the State to resist the competitive pressures of globalized production
and against corporate relocation overseas, free trade, the WTO, Chinese expan-
sion, European Union exports, Mexican and Central American immigration,
organised labour, social rights and multiculturalism. While the US state’s
repressive capabilities are an important instrument of international power,

xiv Preface to the English Edition
they can hardly halt or undo the world economy’s most deep-rooted tenden-
cies. They do however suggest a new form of regulation. The emergence of a
radical right plays a leading role in the US in fuelling the far right’s rise globally.
In Europe, electoral victories in Hungary, Norway and Italy, the Brexit referen-
dum in the UK and voting patterns in France, Germany, Holland, Austria, Swe-
den, Ukraine and Greece are evidence of this trend. In Latin America, we could
see a similar pattern in the coups in Honduras (2008), Paraguay (2012) and Bra-
zil (2016); Colombia’s joining of NATO and rejection of the peace deal with the
FARC, the election of Macri in Argentina (2015), and above all the victory of
far-right Jair Bolsonaro in Brazil (2018). These developments ushered in gov-
ernments that restrict political liberalism and workers’ rights whilst subordi-
nating themselves to neoliberalism and the Trump administration’s extreme
version of imperialism.
Although global military spending has fallen in the 2010s compared to the
2000s, a closer look reveals an intensification of interstate competition. Be-
tween 2001 and 2017, China and Russia’s growth rates were markedly higher
than those of the United States. US military spending expanded by 2.3% in this
period, compared to 10% for China and 7% for Russia. This meant their com-
bined military expenditure jumped from 16% to 48% of US military spending
in 2000–2017. If these rates are maintained there is a real possibility of China
and Russia achieving military parity over the next 15–20 years. Attempts in the
Trump administration to regain the military initiative, as Republicans have at-
tempted since the 1980s, has invariably come up against the tightening budget-
ary constraints imposed by the expanding US public debt. This prospect com-
pounds US imperialism’s structural limitations, elevates global tensions and
the risk of conflict, and reinforces the bifurcating tendency of global power
projects. Lastly, another aspect of the impending systemic chaos, the collapse
of the existing monetary standard, could in the coming years be combined
with the exhaustion of the expansive phase of the Kondratiev cycle, which we
return to below.
Our second major thesis was that the expansive A-phase of the current Kon-
dratiev cycle would be weaker than its 1950–73 equivalent in terms of its capac-
ity for material and political change. Despite displacing power towards a new
geopolitical axis led by China, its transformative potential is severely curtailed
because of its link to the downturn in the US systemic cycle and to the techno-
scientific revolution. This renders it incapable of dismantling the neoliberal
model, financing strategies, the dollar hegemony and the US cycle’s institu-
tional bases, although it does further weaken them. The splintering of the
world system today confirms our hypothesis.

Preface to the English Edition xv
Starting in 1994, the expansive Kondratiev drove world GDP per capita
growth rates and profit rates up significantly, but not to 1950–73 levels. Between
1994 and 2010, GDP per capita growth stood at 2.4% p.a. This was double the
1973–93 rate but below the 2.9% p.a. achieved in 1950–73 – a gap that widened
in the 2010s due to the slowdown in economic growth. This long phase consists
of three periods: resumption (1994–2000), prosperity (2002–2008), and matu-
rity (2010-). 21st century global crises have centred on the US and the European
Union, slashing economic growth there. The 2001 crisis erupted due to the Nas-
daq and dotcom speculative bubbles bursting, as well as the attack on the Twin
Towers and the Pentagon, whilst the 2008–09 crisis was related to the end of
the housing bubble in the US but also seriously affected the EU.
In the mid-1990s China’s heightened world-economic presence began to
drive up the US trade deficit and public debt, which came increasingly under
the control of international actors and the Chinese state especially. China’s
high growth rates and resulting surpluses enabled it to promote a productive
circuit that articulated exports to the US, internal market expansion and a ris-
ing demand for raw materials and commodities on the world market, whilst
simultaneously maintaining a financial circuit based on US parasitism. This
process intensified in the first decade of the 2000s when the commodity boom
brought Latin America and Africa into the long phase of economic expansion.
But the crisis of 2008–09 showed there were limits to the compatibility of these
two circuits. China redirected its developmental model, which was export-
based between 1994 and 2008, towards its internal market and hinterlands. At
the same time, it led the formation of the BRICS and followed an agenda of
promoting the global South through public investment and financing national
balances-of-payments in Latin America, the Caribbean, Africa and Asia. China
also abandoned its 2002–2011 policy of buying up US bonds in public debt,
which made it the US Treasury’s chief creditor and saw the US through the
2008–09 crisis, in favour of freezing and even reducing its ownership of such
assets.
At the root of these policy changes lies the negative impact of the US/EU
crisis on China’s economic growth, which has fallen from double digits in
2005–11 to 6–7%. The slowdown in growth has made it less effective in reduc-
ing poverty and has thrown a light on the alarming rise in inequality that
occurred during the Chinese and US economies’ articulation. This has pres-
sured the Chinese government into looking for a new model of development.
The whole process looks set to intensify as the current expansive phase comes
to an end. The US’s deepening financial imbalances and aggressive protection-
ist policies could combine with a Chinese policy of containing the trade

xvi Preface to the English Edition
b alance and restricting the conversion of its reserves into US bonds to devastat-
ing effect. The China surpluses dwindle in the face of the growing financing
needs of imperialist parasitism and the political and social pressure from its
huge working class to direct those surpluses towards tackling inequality – pres-
sure which typically accumulates at the end of a long expansive phase – and
could collapse the flexible dollar model. The Chinese government is a political
actor and bases its decision-making on political criteria, rather than calculat-
ing the v aluation/devaluation of assets in the manner of private investors who
can influence market prices.
Our third thesis is that of the crisis of US hegemony. This thesis was formu-
lated by Immanuel Wallerstein, Theotonio Dos Santos, Andre Gunder Frank,
and Beverly Silver, and finds its maximum expression in Giovanni Arrighi. The
social, political, economic and ideological evidence of recent years weighs
heavily in its support. Under the Trump administration, financial deregulation,
a regressive fiscal policy, rising military expenditure and the abandonment of
political liberalism combined with a unilateralist and protectionist foreign
policy to hasten the trajectory of US decline instead of reversing it. Trump’s
attempts to reactivate a national industrial policy had a very limited impact.
This compounded US isolation in the world and created space for its rivals to
assert themselves. It did not even succeed in containing the pace of expansion
of the trade deficit, which, tied to cutting-edge technology, is growing far more
consistently than in the opening decade of the 21st century, when it was mainly
associated with the oil account.
But this decline is primarily of US imperialism and it is intensifying social
conflict within North American society. It threatens a financial crisis which in
putting the flexible dollar standard at risk means there might be only two ways
to reorganise public policies and the world system: either by reprioritising mil-
itary spending, which was restricted when the public budget was diverted into
financialisation; or by massively boosting social spending on welfare, infra-
structure and environmental sustainability. Over the course of the 20th
century, each new developmental model has seen public expenditure as a pro-
portion of GDP rise, and the next stage of development could see it surpass the
50–60% figure. The liberal Victorian state was succeeded by the protectionist
state and state capitalism of the 1930s and 1940s. This was followed by military
Keynesianism and the postwar welfare state, which in turn gave way to neolib-
eralism. In the 21st century, the first reorganising option will tend towards fos-
tering fascist forms, while the second will tend to develop forms of transition
to socialism.
Our fourth thesis concerns the post-capitalist character of the techno-
scientific revolution. This was first formulated by Radovan Richta, who drew

Preface to the English Edition xvii
on Marx’s writings in the Grundrisse and Capital and was introduced to Latin
American thought by Theotonio Dos Santos. We note that the globalization of
the techno-scientific revolution from the 1970s on has transformed labour
power’s knowledge and subjectivity, and therefore value, into the main
productive force. The education of the labour force is now limitless and is re-
ducing the gap between the value of labour power and the value of labour,
plunging the rate of surplus value and laws of capital accumulation into crisis.
This reverses the logic of surplus value production. Under this logic, machin-
ery deskills labour power, whose knowledge is incorporated into the new tech-
nology, making it ever more intensive and a mere appendix. This creates the
social conditions necessary to devalue it and increase the rate of surplus value.
Faced with new material conditions imposed by the productive forces, gener-
ating a crisis for its mode of production, capital reacts by generalising labour
super-exploitation and paying workers less than the value of their labour pow-
er. This means using the State to produce fictitious capital, maintain high lev-
els of structural unemployment and delocalise production in order to use the
labour force in the periphery to level down the wages of the majority of work-
ers in the central countries. Financialisation arises not only as a cyclical feature
of global capitalism but as a structural one, and the substitution of the me-
chanical principle for the automatic one contributes to it. This gradually weak-
ens the relationship between technological innovation and saving on labour
power and conflicts with the production of extraordinary surplus value be-
cause the latter depends on demand being transferred from workers to capital
to keep prices above value.
The techno-scientific revolution’s productive forces are far more suited to
producing public goods than those of the industrial revolution. The industrial
revolution was focused on producing individual, tangible consumer goods,
and was driven by the textile, civil construction, food, automotive, and electro-
domestic industries. In contrast the techno-scientific revolution is focused on
producing knowledge and intangible assets, and developing services around
health, education, culture, leisure and environmental protection. It is driven
by communication technologies, microelectronics and biotechnology. Where-
as the industrial revolution came about in a world of scarcity and therefore
separated the products of processes as private property, the techno-scientific
revolution drastically reduces the cost of producing use values due to the
greater use of immaterial goods. This means prices are increasingly an expres-
sion of monopoly. As workers get used to a consumption structure based on
access to public goods, they create a new subjectivity that capital seeks to limit
or deny, breaking with full employment policies and artificially imposing
scarcity.

xviii Preface to the English Edition
The socialism of the 21st century should embody an antisystemic alternative

at various different levels and present itself as a political force that (a) goes
beyond the periphery/semi-periphery and forges a new global geopolitical axis
based on the hinterlands and linked to a project of the global South, whose
transnational nature enables it to isolate and defeat imperialism via class
struggle both without and within the old central powers; (b) internationalises
social movements and is active in the struggle for peace; (c) is linked over a
long period to the market just as capitalism was linked to the State, but moves
in the opposite direction by subordinating the market to public objectives un-
der the eye of a participatory democracy that socialises power structures and
promotes emancipation; and (d) overcomes scarcity.
Our fifth thesis is that neoliberalism is the precursor of fascism. Fascism is a
regime of terror unleashed by big capital in order to destroy working class so-
cial and democratic gains whenever it feels threatened by them. Fascism, as a
state form, is the product of a historical bloc being formed which unites fas-
cists, liberals and conservatives under fascist leadership against a common en-
emy. Regardless of the local forms it might take, fascism always includes those
labelled as communists and socialists among its main targets. The most impor-
tant historical processes to lead to the rise of fascism developed in liberal insti-
tutional environments, as with Mussolini and Hitler, and were ratified by
Parliament. Liberalism and fascism can combine in a variety of ways: thus un-
der the kind of regimes established in Italy in 1922–25 and Germany in
January-June 1933, multi-party political liberalism was able to continue to
some extent on a formal level, but it was crippled by its subordination to an
arbitrary decision-making structure that used the State’s powers of coercion to
act extrajudicially.
We call neoliberalism the ideology of the crisis of capital. What it shares with
fascism is a desire to take a big civilisational step backwards by decimating the
rights conquered by workers. Although it does not explicitly seek to suppress
political freedom, it admits such a possibility when it loses its legitimacy to
guarantee what it calls economic freedom, i.e. to support big capital’s monopo-
listic corporations and the rules of competition that favour them on the world
market without restrictions being imposed by the working class via their social
and political organisations and control over state policy. In 1927, Ludwig von
Mises asserted in Liberalism in the Classical Tradition that fascism and similar
movements were full of good intentions and had saved European civilisation
from the threat of communism. Years later, both Friedrich Hayek in The Road to
Serfdom (1944) and Milton Friedman in Capitalism and Freedom (1962) affirmed
that new liberals, unlike the old ones, only arrive at political freedom from the
economic one. Both men actively supported the Pinochet government in Chile.

Preface to the English Edition xix
Neoliberalism differs from fascism in that it only permits a totalitarian state

on a temporary basis. Then once the political threat to big capital has been
extinguished, it seeks to either reinstate liberal democracy or else impose a
permanent hybrid formula in the shape of a restricted multi-party system that
provides legal and political assurances to the monopolist bourgeoisie. Howev-
er, the time limits in question are not theoretically defined and the difference
between neoliberalism and fascism becomes blurred during bifurcations de-
termined by major historical confrontations. Neoliberalism also differs from
fascism in its defence of the minimalist State, but again does not define the
limits of this State in the abstract. The minimalist State only does what is need-
ed to guarantee capital’s profitability and security. But faced with a working-
class social offensive, neoliberalism ramped up state intervention in order to
protect profits. It did this by using public debt to produce fictitious capital,
slashing employment rates, and bringing the unions to their knees. To safe-
guard capitalist property rights, it agreed to the use of the military, the police
and paramilitary forces against political opposition and social movements. In
principle, fascism’s defence of permanent political monopolies makes it more
inclined than neoliberalism to expand state expenditure. The story of Hjalmar
Schacht, a German banker and one of Hitler’s key allies among the country’s
business and financial elite illustrates this point. Schacht was appointed presi-
dent of the Reichsbank in March 1933 and then Minister of Economics and
General Plenipotentiary for the War Effort in 1935. But he then lost these
positions after clashing with Göring over what he saw as an excessive and infla-
tionary increase in military expenditure and became minister without
portfolio. In 1939 he was accused of conspiracy and in 1944 was deported to
Dachau.
Our sixth thesis is that neoliberal globalization and imperialism drive de-
pendency towards its most extreme forms. The crisis of the Washington Con-
sensus fuelled the growth of the centre-left and left, who were elected to run
the most important governments in the Southern Cone. The rise of this histori-
cal bloc based on national-popular or Third Way state capitalist projects coin-
cided with a commodity boom across South America that was closely tied to
China’s influence on the world economy and the region’s foreign trade. It was
thus handed a one-off chance to build up reserves on the back of large current
transaction surpluses and slash external debt. This meant that over the 1999–
2009 period of foreign capital outflows it was relatively capable of shaping its
own destiny and designing its own public policies whilst overcoming or reduc-
ing any r esistance encountered. Despite financial and productive limitations, it
laid out an ambitious agenda of Latin American integration centred on UN-
ASUR and the Banco del Sur; a Mercosur reorganised around social objectives

xx Preface to the English Edition
and cooperation, and the Bolivarian Alternative for the Americas (ALBA). It
boosted popular consumption levels enormously and reduced rates of super-
exploitation.
We argue, however, that this historical bloc’s relatively peaceful advance –
coup attempts notwithstanding – and the growth and leftward turn of the po-
litical centre had to do with a specific historical context highly favourable to
international insertion and the deeply demoralised state of the neoliberal
forces. In the first edition of this book, we argued that this state of affairs was
nearing its end and there would be a resurgence of conflict, making it incum-
bent on the left to radicalise its programme. The 2010–14 period allowed the
popular and democratic camp’s offensive to continue up to a point, but its ex-
haustion put huge obstacles in the way of further progress. Foreign capital in-
flows recovered, increasing reserves, but they were mainly channelled towards
Brazil. Commodity prices peaked in 2011 and then slowly receded until, along
with foreign capital inflows, they crashed in 2015. This provoked a major crisis
of hegemony among the political forces in question, who were then the targets
of a counter-offensive by local oligarchies and imperialism. As we anticipated,
the reversal of the terms of trade has led to increased pressure from various
fractions of big capital to bring back policies favouring super-exploitation,
which has squeezed any room for centrism. The governments of Maduro (Ven-
ezuela) and Cristina Kirchner (Argentina) were strangled by balance-of-
payments deficits, and the coups in Paraguay and Brazil, the election of Macri
and Bolsonaro, and the isolation suffered by Venezuela’s Bolivarian revolution
have inaugurated a new period of conservative ascendancy in which an in-
creasingly global right is bringing neoliberal and fascist forces together with
the beginnings of the most radical forms of imperialism.
A range of errors and omissions contributed to the defeat of the left(s).
Among them, we would highlight the following:
a. Its agenda for regional integration based on sovereignty and cooperation
remained largely unfulfilled. It was applied far more to ALBA than UN-
ASUR or Mercosur, and the Banco del Sur never got off the ground. Nei-
ther did it succeed in its aim of creating a regional stabilisation fund for
international crises or a regional alternative currency to the dollar for
local exchange purposes;
b. Joining Mercosur did little to diversify Venezuela’s foreign trade and more
to help Brazil’s trade surpluses as it continued to provide the latter with
just 1% or so of its oil needs. Venezuela remained vulnerable to the
restructuring of US imperialism that drastically reduced its oil account
deficit and Latin American countries failed to use surpluses obtained

Preface to the English Edition xxi
during the commodity boom to diversify their production and export

patterns;
c. The room for consensus opened up by the commodity boom made the
left lean in far too moderate a direction and postpone confrontation just
when the time was ripe for it. This even happened to Venezuela, which
failed to nationalise the financial system, financed through its trade bal-
ance a capital flight to the tune of around 150 billion dollars between 1999
and 2015;
d. In Brazil’s case, the tendency towards moderation ran far deeper. The PT
(Worker’s Party) never impeded fictitious financial capital from playing a
lead role and instead tied it to specific industrial policies and the expan-
sion of domestic demand among the poorest sectors. Despite high levels
of international reserves and a healthy balance of payments, Dilma re-
sponded to the 2015 crisis by ending social policies and adopting austerity
measures closely tied to rentierism instead of confronting it. Subsequent-
ly her popularity plummeted, paving the way for a coup d’etat.
Latin America has little to gain from the neoconservative offensive. As neolib-
eral globalization approaches its limits, foreign trade and foreign capital inflow
cycles are losing their dynamism. Each new cycle is weaker than the previous
one, while the high stocks caused by asset denationalisation are systematically
speeding up decapitalisation across the region. Regional development can
only be revived by restoring the public investment, so harshly cut under neo-
liberalism and the neoconservatives, and gearing it towards stimulating inter-
nal demand from the working majority. But that can only come about through
intensified social struggle.
The seventh and last thesis that we highlight is that we need to develop a
Marxist theory of the world system. This work indicates how this might be
achieved. We started from the Marxist theory of dependence and bring it clos-
er to world-system approaches, especially those of Braudelian inspiration, led
by Immanuel Wallerstein and Giovanni Arrighi, seeking points of convergence
and resignification. We do this by constructing analytical mediations that dia-
lectically articulate, in broader totalities, a whole range of concepts that com-
municate with each other via different narratives, namely: capitalist mode of
production, modern world system and historical capitalism; structural time,
primitive accumulation, industrial and techno-scientific revolution; relative
surplus value, absolute surplus value and superexploitation; imperialism, he-
gemony and sub-imperialism; centre, semiperiphery, periphery and depen-
dency; and systemic cycles, Kondratiev cycles and foreign capital cycles in
dependent countries.

xxii Preface to the English Edition
We trust that our analytical proposals put forth in this revised English edi-
tion will bear fruit not only in terms of understanding the huge structural
transformations taking place before our eyes, but also in developing our strate-
gic thinking in the struggle for a new world amidst the uncertainty and deep
crisis that is currently unfolding.

Translator’s Acknowledgement
I wish to thank the two people who have helped me hugely in this work,
namely, Dr. Andy Higginbottom and Vitor Filgueiras.
—Jacob Lagnado

Figures
4.1 US rate of profit 157

4.2 US rate of profit 157
4.3 Per capita GDP annual growth in the World economy (%) 158
4.4 United States and Britain annual variation of GDP per capita (%) 159
4.5 Annual variation in per capita GDP of the World economy,
1870–1913 (%) 160
4.6 US and World GDP per capita annual growth 160
4.7 GDP per capita annual growth (%) 161
4.8 US trade deficit 162
4.9 Producer price inflation in the United States (%) 163
4.10 US real weekly wages, (1982–1984 in constant USD) 164
4.11 Value of the dollar 165
4.12 US investment as a percent of GDP 166
4.13 US/World direct investment flows (%) 167
4.14 China and US/World imports 168
5.1 Remittances of profits, interest and non-factor services vs. incoming foreign
capital in Latin America – 1956–2009 (in USD billions) 231
5.2 Remittances of profits, interest and non-factor services vs. incoming foreign
capital in Latin America 231
5.3 Direct investment as a percentage of foreign capital (flows) in Latin
America 233
5.4 Latin America GDP per capita (as a percentage of the organic core of the world
economy) 250
5.5 Latin America GDP per capita (as a % of world economy GDP per
capita) 254
5.6 Foreign capital inflows as a percentage of payments for utilities, interests, and
factor services 256
7.1 Chinese imports: type of goods (%) 289

Prologue
Dependency Theory: Prospects and Challenges in

the 21st Century
Adrián Sotelo Valencia
Carlos Eduardo Martins is currently one of the most prominent theoretical ex-
ponents of critical Latin American thought. At a time when many intellectuals
were abandoning critical thinking and Marxism to follow the path of neoliber-
alism and the latest theoretical-methodological trends, Martins articulated
Marxist dependency theory with the approach known as capitalist world sys-
tem analysis. The virtuous relationship between the two approaches and the
renewed dialectical analysis of Latin American dependency in the global con-
text that it produces lie at the heart of the present volume.
Unlike other authors, Martins makes it clear that the concept of a world sys-
tem cannot erase or substitute that of a mode of production. This is key to avoid-
ing the mistake of one-dimensional analysis, as the latter constitutes the
material base of production and reproduction of social life in all of humanity’s
historical epochs. He thus takes his place as one of the leading Marxist expo-
nents of dependency theory in the tradition of classic figures such as Ruy Mau-
ro Marini, Theotonio Dos Santos and Vania Bambirra, whose insights and ideas
contributed most to its development.
The book begins by laying out the big challenges facing the social sciences
in the context of what is called globalization. It then comprehensively explains
the origins, cycles and secular nature of the modern world system and its crisis.
This leads to his exposition of the contemporary structural features of depen-
dency in what is described as a modern world system constituted by intensi-
fied labour super-exploitation.
In my view, the originality of the author’s contribution to dependency theo-
ry lies in identifying, describing and systematising super-exploitation – the
backbone of the global capitalist economy. Martins shows that this is a mecha-
nism that operates not only in dependent economies like those of Latin Amer-
ica, but also as a function of capital’s structural and civilisational crisis. It is a
mechanism that is gradually penetrating the very heart of the economic and
productive cycles in the advanced capitalist economies of the imperialist na-
tions: the European Union, United States and Japan. Previously, only the mech-
anism of production for average and extraordinary profits had functioned in

xxvi SOTELO
those countries. This primarily took place via the rise in labour productivity
achieved by intensely incorporating the fruits of the techno-scientific revolu-
tion into the productive process between the end of WWII up until the big
structural and financial crisis of the 1980s and 1990s.
The author argues that today, the structural determination constituted and
driven by labour’s increased productive capacity is joined by super-exploitation
as a new component of social relations and capital’s exploitation of labour in
the advanced countries. This is precisely why his chapter “Revisiting the Politi-
cal Economy of Dependency in the Light of Marx and Contemporary Capital-
ism” is so important. Here, he sets out his own unique view of this polemical
issue, one which is crucial to understanding the modern-day dynamics of
crisis-ridden capitalism.
After laying out the history of the notion of super-exploitation as it appears
in the classic work of Marini’s Dialéctica de la dependencia, Martins then draws
up a thought-provoking balance of the concept. He traces out the historical
forms assumed by super-exploitation in Latin America in the export economy,
import substitution and neoliberalism. In so doing, he offers a fascinating dis-
cussion of the past and present relationship between labour intensity and ac-
cumulation patterns based on technological development aimed at the world
market. Martins concludes that the new model of capitalist development in
the region broadens and deepens super-exploitation; generates economic
growth that is both low on average and ecologically unsustainable because it
actually destroys the environment; triggers the return of deep social and politi-
cal crisis as a result of poverty, unemployment, and the rise in precarious and
super-exploited labour, with growth tied to a capitalist world economy gripped
by decline and a terminal civilisational crisis.
The book also presents alternatives to capitalism’s self-destructive path
even if there are no magic answers or caudillos to perform miracles. As the
author argues, capitalism in all its guises, dependent or advanced, needs to be
superseded by what he calls a new model of regional development, whose his-
torical transformative subject consists of whichever “antisystemic social move-
ments” capable of articulating and developing a serious alternative project,
democratic and liberatory in nature, that reaches beyond systems predicated
upon exploitation and domination.
The question of exactly what alternatives might embody the social, eco-
nomic and political transformation of the system is not an easy one for Marx-
ism and critical Latin American thought to resolve as it involves a whole range
of concepts and issues which that must be resolved. And that is precisely why
Carlos Eduardo Martin’s book is so important. It provides an essential starting

Prologue xxvii
point for an urgent and necessary debate among interested parties and popular
movements with the capacity to build alternative projects in the face of capi-
talism’s global crisis as both a mode of production and a system of political
domination.

Introduction
We live in an age of uncertainty, in which historical time has accelerated be-

yond recognition and Marx’s observation that “all that is solid melts into air”
seems more relevant than ever. As global integration gathers pace so too does
the clash of different social, political and ideological forces, bringing unexpect-
ed consequences. Capturing the movement towards the articulation of the
global with regional, national and local particularities is one of the biggest
challenges facing the social sciences today.
The fin de siècle has come and gone, and with it the end of history. Even the
least attentive gaze cannot ignore the world of contradictions that has emerged
in all its vitality: a world that is at once decadent and vibrant, apathetic and
engaged, orderly and chaotic, private and public, peaceful and violent; a world
of both hope and hatred, remembrance and indifference, anonymity and iden-
tity. Mapping its dynamics and dilemmas allows us not just to make sense of an
apparently absurd reality, but to illuminate our social and political activity
such that our desires might leave an imprint on reality.
The certainty with which previous generations faced the future is evaporat-
ing and in its place we have freedom. This brings both risk and opportunity.
Our search for peace, diversity, liberty and solidarity increasingly impels us to
close the gap between science and ethics and between reason and emotion.
Taking this concern as its starting point, the present work locates Latin Amer-
ica’s pathways and opportunities within an ever-shifting global space. But this
means embarking on a huge theoretical, methodological and empirical adven-
ture which carries no little risk. In making movement part of our object of
study we renounce our faith in an ordered reality, to which time in the longer
sense never stays loyal anyway. Guided by history, our analysis looks both for-
wards and backwards. It is imbued with structures, secular trends and cycles,
which nevertheless offer not mathematical truths but rather heuristic inter-
pretations of reality.
Globalization, dependency and neoliberalism are our three analytical cor-
nerstones for understanding Latin America’s current place in the world and
the choices it faces. In the first chapter, Social Sciences and the Challenges of
Globalization, we look at the main ways in which globalization has been
understood. We focus on five or six perspectives which each group together
various authors – notwithstanding their differences – and then, in an ongoing
dialogue with these readings, we build an analytical framework for under-
standing globalization. To do so, we turn above all to world-system and depen-
dency theories.
© koninklijke brill nv, leiden, �� | doi:10.1163/9789004415546_002

2 Introduction
In The Modern World System and Capitalism: Origins, Cycles and Secularity
(Chapter 2), we seek to understand capitalist development through the notion
of historical capitalism. Historical capitalism arises from the formation of the
modern world-system (its political superstructure) and its articulation with
the capitalist mode of production (its material base). We identify its secular
trends and cycles in order to locate the theoretical and historical space inhab-
ited by the current stage of capitalism and the world system in which we live.
We do this by weaving together various traditions, which are gradually finding
common ground. These include the Braudelian one developed by the Fernand
Braudel Center and the Marxist tradition based on Marx’s theory of value and
his view of cycles but also on theories of imperialism, dependency, the scien-
tific and technological revolution and long cycles. However we also engage
with other traditions, including Schumpeterian, neo-Schumpeterian, regula-
tionist and institutionalist thinking on technological innovation, systems of
innovation, cycles, and institutional regimes. This makes for a very rich dia-
logue, but also one that requires us to exercise great caution in (re)developing
concepts in order to avoid the ever-present but ultimately sterile temptations
of eclecticism. We hope we have been successful in this.
The following chapter, Globalization and the Crisis of the Modern World
System, locates the crisis of the world system within the context of globaliza-
tion. We argue that globalization is a revolutionary force, and therefore both
creative and destructive. However, despite being relatively autonomous of one
another, the processes of creation and destruction establish a dialectic with
unforeseen effects, in which one pole can dominate and condition the other.
At the current stage, globalization has still yet to find a social and institutional
structure that allows it to create. Historically, systemic crises represent bifurca-
tion points, and our thesis is that in the next ten to forty years we will head
towards a new bifurcation quite unlike those that occurred in the modern
world system. During this stage, the struggle for a new world will involve both
destruction and construction. Destruction will be used in the fight to preserve
privilege by saving the empire. Construction, on the other hand, will be driven
by the force of life itself. It will appear spontaneously and unexpectedly, to
then take on an organised form as it strives towards a post-hegemonic world
with humanity at its centre and which realises the French Revolution’s ideals
of liberty, equality and fraternity everywhere.
In Chapter 4 we turn to one of the most crucial and controversial issues in
contemporary social thought in The Impasses of US Hegemony: 21st Century
Perspectives. We discuss the two main approaches to the issues currently fac-
ing US hegemony. One posits that the US is experiencing a crisis of hegemony.
The other maintains the opposite: that the US has actually grown stronger in

Introduction 3
its march towards empire. We identify with the first school of thought, and
provide a historical and empirical analysis of the development of US hege-
mony as part of our debate with the leading proponents of the second.
In the fifth chapter, Dependency and Development in the Modern World
System, we look at the main theses in Latin American and world thought to
have evaluated the role of foreign capital in the development in the modern
world system. This chapter also looks at the persistence of poverty and under-
development and how to improve the income and welfare of Latin Ameri-
cans, linking that discussion to the empirical analysis of Latin American
development.
The sixth chapter is entitled Revisiting the Political Economy of Dependen-
cy in the Light of Marx and Contemporary Capitalism. It was written for Brill’s
English edition and replaces the corresponding chapter in the Brazilian edi-
tion. Here we analyse super-exploitation within the framework of Marxist
value theory and the debates surrounding it, and seek to update some aspects
of the concept in order to conserve the key tenets of Marini’s thought. We also
look at the forms super-exploitation has taken in the chief models of develop-
ment adopted in the region, with an emphasis on the neoliberal model and its
spread throughout the world today.
Finally, in Latin America: Dependency, Neoliberalism and New Models of
Development (Chapter 7) we conclude with a balance of neoliberalism in the
region, highlighting its disastrous social and economic consequences. We also
look at Latin America’s prospects in the 21st Century and China’s potential in-
fluence on the region in light of its role in the world economy.

Chapter 1
Social Sciences and the Challenges of Globalization
1 The Global Fog and Visions of Globalization
In Chaos and Governance in the Modern World System,1 Giovanni Arrighi and
Beverly Silver argue that we live in a period of global fog due to the uncertainty
created by the globalization processes fanning out across the world economy
since the 1970s. The profound changes to the productive forces have affected
social life as a whole. Historical time has speeded up and impacted upon exist-
ing societal structures and the geohistory of the world’s peoples, changing our
habitats and ways of life. The economy, politics, our thought patterns and daily
life have all been transformed. But what exactly is globalization? How does it
affect pre-existing economic, political, social and ideological structures? And
what new paths of human development lie on the horizon?
Times of transition are also times of confusion, and so the answers to these
questions vary a great deal. Broadly speaking, we can identify five main inter-
pretations of globalization. Here we shall present their most general features,
bearing in mind they each encompass varying shades of opinion, and there
may indeed be significant differences between the leading advocates of any
one perspective.
The first we shall call a globalist interpretation. This starts from the assump-
tion that globalization presented the social sciences with a new object of study:
global society. In this account, the global appears as a radically new era, which
subsumes the national and the local. At its core is the new technological (mi-
croelectronic) paradigm where electronic and communication technologies
have joined forces to integrate the financial and productive spheres on a global
scale. This process has created a new set of dominant actors in the world
economy – global businesses and market forces who subjugate national states
through the planetary or cosmic reach of their technologies and the speed of
circulating capital. This has created a deterritorialised regime of accumulation,
which asserts financial wealth over productive wealth and has turned the glob-
al age into the age of financial capital. In this new era, multinational corpora-
tions are transformed into global network-based businesses or ‘technobergs’
which act on the same global scale as investment and pension funds and big
1 Published in Brazil as Caos e governabilidade no modern world system (2001).

Social Sciences and the Challenges of Globalization 5
banks, subordinating state policies to their profitmaking goals. Employment

rights and social protection are rendered obsolete in this context.
Globalists describe the global era in similar terms when it comes to its more
general features, but they diverge considerably when it comes to its effects.
They can be divided into two groups: those who see in globalization a tenden-
cy towards synchronicity, harmony and integration once the new culture of
competitiveness is learned; and those who to varying degrees view it as a pola-
rising and diachronic process which at worst runs the risks of triggering social-
ist revolutions worldwide. The first group includes authors like Kenich Ohmae
(2010), Robert Reich (1992) and Francis Fukuyama (1992), whilst the second
includes Octávio Ianni (1992, 1995, 1999a, 1999b), René Dreifuss (1996, 1999),
Hardt and Negri (2000) and Jürgen Habermas (2015).
A second understanding of globalization is represented by theories of
shared hegemony. Here we might include Paul Hirst and Grahame Thomson
(1996), Anthony Giddens (1999), Robert Keohane and Joseph Nye (2000),
Joseph Nye (2002) and Zbgniew Brzezinski (2005), all of whom question the
globalist view that the microelectronic technologies emerging in the 1970s
have helped build a global society. In their account, these new technologies
represent a quantitative rather than a qualitative change in the process of in-
ternationalisation. They draw out the latter’s accumulative character and all-
important harbingers such as the telegraph in the late 19th century, when
thanks to the appearance of the first submarine communications cables, infor-
mation could be shared in almost real time and a commercial system capable
of determining world prices on a daily basis became technically feasible. For
these authors, globalization has further internationalised the world economy.
Despite operating worldwide, capitalist firms remain ‘international’ because
they are competitive organisations that seek to amass in their countries of ori-
gin the strategic assets that enable them to project themselves in the world
economy. National states are still the key players in today’s world. They offer
companies external services that are vital to structuring and potentialising
capital accumulation. These services include security (centralised in govern-
mental apparatuses of coercion and legal regulation); partial absorption of the
production costs of transport and communications infrastructure; R&D and
employee training, and cultural identity, which capital uses as a point of refer-
ence to reduce labour mobility and exploit solidarity based on national ties for
its own ends.
However, greater internationalisation increases the flow of goods and capi-
tals across state borders and can end up weakening the articulation of the
national state and capital. This in turn risks triggering a global crisis of govern-
ability with disruptive consequences for social formations generally. The na-

6 Chapter 1
tional state will have to be reformulated in order to forge a new relationship

with both the local and global dimensions. This reformulation should lead to
new global regulatory frameworks based on international treaties, regulatory
agencies, regional blocs and inter-governmental cooperation. It should also
mean democratising the State and making it far more receptive to local de-
mands, given how much information technology has helped civil society to
improve its organisational capacity. The most developed states will take a lead
role in setting up international regulatory regimes and frameworks. In doing so
they will retain their competitive advantages when it comes to localising their
investments, and their status vis-à-vis peripheral and semi-peripheral states.
The third interpretation of note is the neo-developmentalist one. Here we
might include socialist writers such as Chesnais (1996, 1998a, 1998b) and Amin
(1997), as well as proponents of an organised form of capitalism, such as Maria
da Conceição Tavares (1985, 1999), José Luis Fiori (1998, 2001, 2004, 2008), Celso
Furtado (1999, 2000a) and Susan Strange (1997). They define globalization as a
largely financial phenomenon rooted in global market integration. They high-
light the technological basis of financial integration but maintain that we are
far from being able to talk of a global productive system. However, they do not
see financial globalization as leading to consequences such as an end to the
sovereignty and autonomy of national states. Instead they argue that it origi-
nated with a US offensive to safeguard and strengthen its hegemonic condi-
tion. Threatened by technological competition from other global poles, the US
relies on its currency and military strength to capture world economy liquidity
and finance its own development by creating a financialised regime of accu-
mulation. That is why it has imposed a new regulation – neoliberalism – which
allows national states’ capital accounts and markets to be liberalised. As a re-
sult, the US condition has gone from hegemonic to almost imperial in a global
economy which relies on low rates of growth to function. Faced with this sce-
nario, the neo-developmentalists seek to re-establish a regime of accumula-
tion which prioritises investment in production, offering a wide range of
answers as to how that might be achieved.
The problem for this approach is that the more the United States flexes its
muscles in support of financialisation, the less room there is for any alterna-
tives to it. Susan Strange, for example, refers to how decisive a role the US must
play in forging a new regime of accumulation. For François Chesnais, the fu-
ture lies in regionalisation and the formation of major continental blocs. Samir
Amin, meanwhile, points to the need for a transition to socialism via accumu-
lative processes of disconnection/reconnection to the world economy. For
their part, Maria da Conceição Tavares, José Luis Fiori and Celso Furtado ask
how peripheral countries – like Brazil – might recover their sovereignty, and

describe the need for an organised capitalism which can bring about internal
financial centralisation, allowing a local industrial bourgeoise to develop using
public and private banking capital. Furtado also stresses the importance of
generating consumption patterns which prioritise national technological de-
velopment and the internal market in ‘semi-continental’ countries with a het-
erogeneous social structure.
World-systems theorists put forward a fourth understanding of globaliza-
tion. They can be divided into two main groups. The first group takes the idea
of the modern world system as its analytical starting point, and includes Im-
manuel Wallerstein (1979, 1995b, 1998a, 1999a, 1999b, 2000a, 2000b, 2003, 2004,
2006, 2011a, 2011b); Giovanni Arrighi (1996, 1997a, 1997b, 2000a, 2001, 2007) and
Beverly Silver (Silver et al. eds. 1995, Arrighi and Silver 1999). But others ques-
tion this concept, including Gunder Frank (1990, 1996, 1998) and Barry Gills
(1996). This second group posits instead the existence of a single world system
in history as their chief theoretical reference point in analysing globalization.
Both perspectives emphasise the continuity that globalization represents
when it is viewed as part of a movement of systemic expansion. Nonetheless,
they also display serious divergences.
The first perspective uses Fernand Braudel’s conceptual division of histori-
cal time into the longue durée (the long duration or term), conjoncture (con-
juncture or cyclical phase) and evenement (short term or ‘event’) to fashion
powerful analytical instruments such as systemic cycles and secular trends.2
Systemic cycles relate to the rise and fall of hegemonic states which organise
an unequal and polarised world economy into centres, semi-peripheries and
peripheries. During periods of cyclical ascent and consolidation the modern
world system expands, but in periods of decline crisis prevails and a restructur-
ing is required. The emergence of new systemic cycles that redirect develop-
ment is possible providing the secular trends of the modern world system can
absorb their contradictions.
In this view, globalization is the final stage along a long continuum. It repre-
sents not only the high point of the modern world system but also its inability
2 Wallerstein (2011) argues that the French term conjoncture should not just be rendered liter-
ally as ‘conjuncture’ in Braudel, as previous English translations have done. Thus in his trans-
lation of Braudel’s History and the Social Sciences: the longue durée (2009) he translates it as
‘cyclical phase’ or else leaves it as conjoncture. In order to distinguish from the author’s sepa-
rate and literal references to cyclical phases, the present translation either follows the earlier
English translations of Braudel in rendering conjoncture simply as ‘conjuncture’ or else re-
tains the original French term, especially where the author is directly comparing Braudel’s
temporal categories. Likewise, longue durée has been left in the original French throughout. –
Trans.

8 Chapter 1
to contain anti-systemic tendencies any longer. Globalization will culminate in

a final crisis and humanity’s transition to another systemic form as determined
by social struggle. The only certainty surrounding such a transition is that it
will herald the end of the historical capitalism led by the modern world
system.
In contrast, André Gunder Frank and Barry Gills postulate the existence of
a single world system of Afro-Eurasian origin ever since the Neolithic revolu-
tion 5,000 years ago. Having first emerged in Central Asia out of the conver-
gence of Egypt and Mesopotamia, it then joined the silk road to spread by land
and sea to China, India and Europe and later the Americas, Africa and Oceania.
The system has been driven since birth by capital accumulation, and until the
18th century Asia was its centre, only to be consigned to the periphery when
Europe and the West took its place in the 19th century. It goes through very
lengthy cyclical processes, each lasting four to five hundred years. For the au-
thors, the changes wrought by globalization affect an existing world system
and should be understood in terms of the latter’s cyclical dynamic. They also
point to Asia’s return to the world system’s centre.
A fifth reading of globalization comes from the Marxist version of depen-
dency theory systematised by authors such as Theotonio Dos Santos (1978a,
1983, 1987, 1990, 1992a, 1995b, 2000a, 2004); Ruy Mauro Marini (1973, 1977a,
1977b, 1979a, 1979b, 1992a, 1996); Orlando Caputo (1973, 2000b, 2001a, 2001b),
and Ana Esther Ceceña (1995, 1999, 2001a, 2001b). Their emphasis is on global-
ization as a period of crisis of the capitalist mode of production. Globalization
revolutionises the productive forces and represents the high point of the law of
value’s development under capitalism. This understanding draws on the works
of Marx (Capital and the Grundrisse) and Radovan Richta in defining
globalization as a worldwide technological and scientific revolution that sub-
ordinates technical expertise and technology to science and enables globally
integrated production. This techno-scientific revolution replaces and super-
sedes the productive base of the industrial revolution generated by capitalist
relations of production. That is why it cannot be fully absorbed and integrated
into said economic forms except during a transitional period beset by contra-
dictions. This period leads to both the full realisation of the law of value and,
dialectically, to its crisis, as a result of the falling rate of profit and the exhaus-
tion of the forces counteracting it.
Seen from this perspective, globalization is an extremely complex affair. It
does not create a new global society per se, but neither is it restricted to spe-
cific dimensions of social life such as finance. Instead it represents a revolution
of the productive forces so profound that it affects the production of human
life as a whole. Because it is a revolutionary force it cannot be fully absorbed by

capital accumulation but instead gives way to a period of transition in which

rival projects try to seize control of it. At first globalization creates an imperial-
ist world economy that incorporates dependent or semi-peripheral and social-
ist countries under different forms, although it imposes ever-tighter limits on
their expansion. This approach also underscores the relevance of Kondratiev
cycles in analysing and anticipating the expansion and crisis of capitalist-led
globalization.
What can we conclude from these different visions of globalization and the
tendencies within each of them? Our aim is not to exhaustively trace their
development but rather to create a theoretical and methodological point of
reference to help us grasp the true dimensions and transformative power of
globalization. Taken together, these interpretations initially come across as a
huge Tower of Babel: global society, world systems, world system, US imperial-
ism, shared hegemony, crisis of hegemony, end of national sovereignty, Asia-as-
the-new-centre, regionalism, disconnection, organised capitalism, socialism,
financialisation, global production, cycles, continuity, rupture, graduated in-
creases etc. These different terms point to key differences in understanding the
nature of globalization, its effects and responses to it.
Nonetheless, the sheer range of different readings of globalization appears
to support Arrighi and Silver’s observation that we live in an age of crisis and
transition. For them, this diversity of approaches speaks volumes about our
current historical circumstances. It suggests we are in the midst of a transition,
when the negative inflexion towards chaos will continue to exercise the stron-
gest pull in a still-hegemonic system until enough new social forces have ac-
cumulated to push things in a more positive direction. The crisis of scientific
paradigms is an ideological expression of a conflict of far wider dimensions. In
a context like this, history picks up incredible speed and the relationships be-
tween social forces are riven with contradictions and instability. Immediate
circumstances feed illusions and one-sided perspectives incapable of grasping
the social movement in its totality.
The best methodological tool for understanding this scenario is the Braude-
lian proposal to articulate the long time span with the conjunctural and short
ones. That is, the articulation of the times of structures, cycles and events.
From this perspective, what we are seeing on the structural level is a profound
capitalist crisis being globalised by neoliberalism. The cyclical dimension is
crucial to this crisis of structures because it allows us to trace its dynamic and
its tendencies. And the structural and cyclical dimensions condition the power
of immediate time, fixing its limits and possibilities.
However, putting this Braudelian proposal into practice is a highly complex
process that requires us to go beyond the limits of Braudel’s own work. To aid

10 Chapter 1
us in this task, we shall turn to Immanuel Wallerstein’s ideas around recon-

structing scientific thought, as chiefly formulated in Impensar (1999a), Para
abrir as ciênciais sociais (1996a) and “Time and Duration” (1998b). For Waller-
stein, the challenge lies in overcoming the scientific legacy of liberalism. Our
point of departure must therefore be the leading theoretical efforts to write
histories and trajectories that offer an alternative to that legacy.
2 Theoretical and Methodological Premises

of a Critical Analysis of Globalization
Wallerstein argues that British hegemony provided a powerful ideological ba-

sis for the expansion of historical capitalism. North American thinkers then
assumed core aspects of this ideology during the transition to US hegemony.
Between 1850 and 1945, the British promoted universalist-particularist thought.
This was based on two premises: (1) that knowledge moves from the particular
to the abstract, and (2) that knowledge should be compartmentalised into spe-
cific disciplines. These two assumptions had radical implications for the or-
ganisation and production of knowledge. Let us highlight five of these:
a. Knowledge was divided into disciplines which were either nomothetic
(sociology, economy and political science) and concerned with formulat-
ing general laws; or idiographic (history and anthropology) and concerned
with the particular and the indeterminate. The nomothetic disciplines
did not recognise time as duration and created theory on the basis of the
present and the most general and abstract conjunctural trends, which
they treated as permanent and static. For their part, the idiographic dis-
ciplines were concerned with the particular and limited themselves to
events. In other words, they favoured description over theory.
b. The nomothetic disciplines segmented knowledge. This meant trying to
establish pure economic, social and political laws, understood as the sep-
arate and combined domains of the market, civil society and the State.
Organising knowledge in this way precluded any intervention in these
three areas that sought to go beyond their separation and combination.
c. Capitalism was understood as a universalist system based on free compe-
tition and largely independent of state power.
d. Nation-based societies existing within a juridical and political framework
defined by the State were deemed the right form of social organisation
for humankind.
e. History was seen as progressing towards a point of equilibrium between
the different pure laws developed by the nomothetic sciences. This meant

subordinating history to its most abstract expression in the form of theo-

retical models.
It is not hard to detect the apologetics inherent to this positivist scientific proj-
ect. By positing capitalist development as something natural, it managed to
divest it of temporality and obscure its social and political foundations. Capi-
talism was seen as an expansive force which emerges from market anarchy and
self-regulation and overrides unwarranted interference from the national po-
litical powers through which men organise their social life. North American
thought continued this epistemic project, albeit with some changes. Thus it
introduced area studies in response to decolonisation and peripheral struggles
for development, and in so doing brought nomothetic and idiographic sciences
together as one subject.
According to Wallerstein, opposition to this understanding of the sciences
came from three sources: ‘State science,’ the Annales School and Marxism.
State science3 flourished in the latter half of the 19th century, above all in Ger-
many. Influenced by Friederich List and his 1841 opus magnus The National
System of Political Economy (List 1909), it critiqued liberal attempts to create
an international economy free of the State and politics and based on cosmo-
politan markets and peace, arguing that such an economy did not actually pre-
clude wars, national interests or global polarisation. State science showed how
important the State was in organising economic, social and cultural life. It
attacked the liberal economy for locating the origins of wealth strictly in
exchange and the separations produced thereof via competition, as in the divi-
sion of labour and personal freedoms. Instead it emphasised the role of State-
led collective labour, unity (in place of separation), planning, and c ultural ac-
cumulation as the core components of a theory of the productive forces that
could offer a more realistic explanation for wealth. But whilst its insights were
most valuable in constructing an international political economy, the state sci-
ence school was limited by its tendency to see the State as the main source of
opposition to liberalism.
State science shared liberalism’s assumption that nationality was the basis
of human organisation par excellence, although it differed about the degree of
autonomy on the political organisation of nationality and its interventions in
the economy and markets. Hence state science’s failure to perceive the State
as an instrument of historical capitalism’s ‘cosmopolitan order’ rendered it
incapable of critiquing the liberal system as a whole. As a result its opposi-
tional stance lacked a certain depth and it ended up being drawn ever closer
to liberal utopias of a peaceful, market-dominated world, despite seeing the
3 Also referred to as ‘sciences of the state’ (Staatswissenschaften). – Trans.

12 Chapter 1
State, with its power to eliminate market asymmetries, as offering the best
route to that utopia. State science finally disappeared in Germany in the sec-
ond decade of the 20th century, giving way to the Anglo-Saxon organisation of
knowledge.
The origins of the Annales School lie in the Revue de Synthèse Historique,
founded in 1900 by Henri Berr. This journal was followed in 1929 by the Annales
d’Histoire Économique et Social, founded by Lucien Febvre and Marc Bloch.
But the School’s real heyday was from 1945 to 1968, when in the midst of the
Cold War it expounded a worldview that resisted both Anglo-Saxon intellec-
tual hegemony and the official Soviet version of Marxism. This view gained
influence just as France was striving to become a third major power alongside
the US and Soviet Union, and as the culture of non-alignment symbolised by
the 1955 Bandung Conference was gaining traction worldwide. Fernand Brau-
del’s work in particular stood out in this period. His concept of the longue du-
rée or long duration (Braudel 2009) was a key contribution to the critique of
the foundations of liberal thought. He used this notion to question the separa-
tion between the nomothetic and idiographic sciences and the division of the
former into separate disciplines (economy, political science and sociology). In
Braudel the duration is unlike the Newtonian chronological and physical time,
which is founded at one and the same time on the diachrony of atoms, stan-
dardised and infinitely small, and statics, based on infinitely larger dimensions.
Instead the duration is the time of structures, signifying change, process and
therefore irreversibility. It represents the dialectic between the multiple and
contradictory times of social life, which cannot exist in isolation from one an-
other. In this dialectic the time of structures coexists with that of the conjonc-
ture and l’evenement. Structural time implies the gradual deterioration of the
more or less fixed organisational architecture connecting social realities and
groups. But while structures provide support, they are also a hindrance that
symbolise the limits man cannot surpass – Braudel’s ‘prisons of the longue
durée’ (2009, 179). The conjoncture or cyclical phase represents the regular, pe-
riodic swings that act upon structures, modifying and renewing them but with-
out affecting the expansion of their core components. And l’evenement is the
time of the event: the daily chronicle, brief, instant even, and chaotic, it influ-
ences structures and their cyclical swings.
Braudel’s notion of duration thus denotes a process that is only visible at a
high level of abstraction: a reflexive movement that proceeds from the general
to the particular – not, as liberalism would have it, the other way around –
and reveals both the limits and potential of instant time and l’evenement. This
reflexive movement integrates not only the multiple times of social life, but
also the different dimensions of reality. In other words, it runs counter to the

segmentation of knowledge into different times or disciplines. The implica-

tions of all this challenge the very foundations of liberal thought.
A critique of the separation of the economic, political and social spheres
involves reconceptualising capitalism as an economic form which cannot sur-
vive shorn of its privileged relationship with the State. Far from being two re-
alities which express themselves externally according to their own distinct
logics, the economic and political domains are inseparable dimensions of a
single process: the genesis and development of capitalism. Likewise, by em-
phasising the global, capitalism is shown to be a system that proceeds from
the worldwide to the national as it emerges and develops. The concept of the
world-economy, developed by Braudel in his work on the Mediterranean,
would be crucial to later attempts to theorise capitalism as a world system.
Although the Annales scholars stressed the need to understand structures,
their analysis of them was left theoretically wanting. In Volume 3 of Civilization
and Capitalism, 15th–18th Centuries (1984) for example, Braudel is hesitant to
accept that capitalism might erode itself.4 Wallerstein dates the decline and
crisis of the Annales School to 1968. He argues that it was far more devoted to
the study of conjonctures (renewing historical method in the process)5 than
structures, despite developing concepts in respect of the latter that were so
powerful as to become an obligatory point of departure for future analyses.
For Wallerstein, Marxism is the ideology par excelence for antisystemic
movements in a capitalist world-economy that tends towards universalism
and preparing the worldwide transition from capitalism to socialism. He high-
lights how Marxism has grown in influence alongside the rise of antisystemic
forces, but warns that this universalist trend also risks sowing intellectual con-
fusion. This is because once Marxism becomes the main language of the anti-
systemic tendencies which the dominated classes secularly impose on the
bourgeoisie, it is met by systemic attempts to pervert its meaning and strip it of
any revolutionary content in order to make way for a Marxism of the centre
and the right. Indeed, ever since the past 19th century this dialectical struggle
between revolution and containment has threatened to prevent Marxism from
developing its theoretical and methodological structure rooted in popular re-
sistance and emancipation.
4 “I may be quite wrong, but I do not have the impression that capitalism is likely to collapse of
its own accord, in some form of ‘endogenous’ deterioration; for any collapse to take place,
there would have to be some kind of external impact of great violence; and a credible alterna-
tive would have to be available” (Braudel 1984, 626).
5 The Annales’ approach to long-term economic data fundamentally transformed historical
investigation because it allowed historians to go beyond the limits of document and archive-
based work in describing and interpreting reality.

14 Chapter 1
What we intend to analyse herein is Marxism as antisystemic and revolu-

tionary theory. This is based on the works of Marx and Engels, who developed
their own methodological approach in order to posit a theory of the produc-
tion of human existence that incorporates both Man’s relationship with Na-
ture and relations between men. Marxism is a theoretical framework which
moves from the global to the particular and from the abstract to the concrete
in a never-ending dialectical process. Capitalism, when seen in this way, is the
sum of economic, technological, social, political and ideological forces that
produce human existence. After wresting control of the State and the global
market, these forces proceeded to create a new mode of production, turning
capitalism into a global force which extended the world market to every
continent. Antisystemic Marxism therefore breaks with the methodological
nationalisms favoured by liberalism6 and instead grounds itself in a global and
internationalist perspective. In addition to Marx and Engels, its main influ-
ences in terms of explaining the capitalist world economy are the different
theories of imperialism (Bukharin, Lenin, Rosa Luxemburg, Hilferding and
Grossmann); Nicolai Kondratiev’s theory of cycles; Radovan Richta’s theory of
the techno-scientific revolution, and the theories of dependency developed by
Theotonio Dos Santos and Ruy Mauro Marini.
Marx set out his method of analysis of social formations and capitalist soci-
ety in the Grundrisse, and this provided a basis for the future development of
his method and Marxist theory. He argued that the analysis of social forma-
tions should rise from the abstract to the concrete, to then reproduce the latter
as the concrete in the mind. This type of analysis starts from a perception of
the concrete as observation and conception, that is, from a certain level of
abstraction of the concrete, before proceeding to identify its most simple, gen-
eral categories. It should then integrate and subordinate these most simple,
6 Liberalism’s assimilation of Marxism manifested itself, for example, in the rightist and cen-
trist positions adopted in the Second International, used to justify open support (in the case
of the right) or support of a subtler nature (the centre) for colonialism, imperialist wars, and
reform instead of revolution. It can also be seen in the theories of socialism in one country or
region promoted in the Third International by Stalinism and its subproducts. All of these
perspectives relied on a methodological nationalism to define capitalist development on a
national basis. They posited either bringing capitalist development to backward countries
through colonialism (Henri van Kol), or else breaking with proletarian internationalism and
supporting national bourgeoisies in kickstarting local capitalism, supporting policies aimed
at either reform (Bernstein) or revolution (Plekhanov). There were also attempts to theorise
a stage of endogenist capitalism subjected to planning and with its competitive-globalising
instincts stifled, thus allowing it to coexist alongside a parallel socialist world system (Stalin)
or within a peaceful world order (Kautsky), even if its birth were marked by violence.

abstract categories to the most concrete, complex dimensions of the social for-
mation. The integration and subordination of the abstract to the concrete and
the simple to the complex are the key components of the Marxist method. By
emphasising processes, this approach can posit and identify both the develop-
ment of a totality and its breaking point.
For Marx, we can only understand capitalism’s development as a social-
historic formation using the following levels of analysis:
a. The abstract determinants present to varying degrees in all societies
(population, production, distribution, exchange and consumption).
b. The categories constituting the internal structure of bourgeois society
(capital, wage labour, landed property) and the basis of the three main so-
cial classes in bourgeois society (capitalists, proletariat and landowners).
c. The concentration of bourgeois society in the form of the State, which
brings in elements such as taxes, state debt, public credit, and the colo-
nial question.
d. The international relations of production, which introduces the interna-
tional division of labour.
e. The world market and crises. (Marx 1973, 108)
Reflecting on the relationship between these levels of analysis, Marx stressed
that a society’s economic categories derive their importance not so much from
the historical sequence in which they appear, but from how they are inter-
articulated within a concrete society. As capitalism develops, its tendency to
globalisation redefines and integrates its most general and abstract laws of ac-
cumulation. Whereas on the one hand, capital, as a more complex category
than the commodity, integrates and subordinates its laws to those of capital
accumulation and sets production costs below product value upon transform-
ing labour power into commodities, on the other hand the development of the
State, global production relations and the world market influences capital ac-
cumulation and the way it works. But unlike in the first instance, this does not
create a new historical-social totality.
The first attempt to develop the implications foreseen by Marx was made by
theories of imperialism. They showed how the development of the State, inter-
national relations of production and the world market was crucial to core
countries overcoming their crises and to ushering in a new stage of capital ac-
cumulation led by finance capital, understood as the cross-penetration and
fusion of banking capital with industrial capital. Finance capital drained the
savings of small and medium businesses and wage workers in order to bankroll
the growth of large-scale industry, stimulating monopoly formation in the pro-
cess. But because the wage mass did not grow accordingly, this increase in the
scale (and stages) of production was not matched by an expansion of national

16 Chapter 1
markets in the big centres. As a result, profit rates fell and capital was exported
in pursuit of more profitable investment opportunities and in order to expand
the global availability of raw materials, minerals and foodstuffs, which would
cheapen the costs of constant and variable capital in the major centres. As part
of this process of internationalisation the world was carved up between the
major powers. But theories of imperialism focussed too much on the core
countries and not enough on colonialism as the dominant political form as-
sumed by inter-capitalist competition during Britain’s periods of hegemonic
crisis. They thus failed to grasp how international relations of production and
the world market conditioned the State and were able to break free from neo-
colonial political forms.
Theories of dependency highlighted the division of labour and internation-
al relations of production as the cornerstones of a capitalist system of rule
which tied the interests of the dominant classes in the core to those of their
dependent counterparts. They went beyond theories of imperialism because
they acknowledged and theorised the commitments articulated by those
classes and their dynamic nature. In doing so, dependency theories almost cre-
ated a world-system theory and were therefore an important forerunner of
world-systems analysis. By recognising the dynamic nature of international
relations of production, they were able to pick up on the cyclical changes at the
centre of the world economy and critique the school of thought that overstat-
ed imperialism’s political and economic powers of coercion and saw depen-
dent countries as incapable of developing or exercising self-determination.
Although imperialism first tried to maintain its coercive tools and caused ma-
jor distortions in the dependent economy, it failed to prevent dependent coun-
tries from developing on the basis of internal determinations articulated with
the world economy.
Dependency theory also reignited the debate around the laws of capitalist
accumulation by introducing the notion of labour super-exploitation. Super-
exploitation derives from the effect of the laws of competition, driven by
international relations of production and the world market, on profit rates in
dependent countries. It is a prerequisite for establishing the set of relation-
ships that underpin the workings of the capitalist world economy. But although
dependency theories were an important forerunner of world-systems theories,
their explanatory power was limited by over-focussing on dependency rather
than putting the world-economy at the centre of their analysis.
Marxist thinkers have also challenged the dominant liberal perspective
through crisis theory. This is divided into cyclical theories and theories of de-
cline. The best proponent of cyclical theories is Nicolai Kondratiev, who anal-
ysed the capitalist economy in terms of 48–60 year periods which themselves

divide into an A-phase (expansion) and a B-phase (stagnation), with major

social, political and ideological implications. These cycles are compatible with
others of lesser duration, such as the 7–11-year medium cycles identified by
Marx, Juglar and Rodberus, and Kitchin’s 3–5 year short cycles. These shorter
cycles are conditioned by the long cycles and their own movements assume
the latter’s overriding nature, be it expansive or recessive.
Theories of decline proceed from Marx’s observations in the Grundrisse and
Capital, which identify the tendency for the rate of profit to fall as the most
important law of political economy. Marx’s perspective was later revived by
Grossmann and in Richta’s theory of the technological and scientific revolu-
tion. Grossmann examined the counter-tendencies to the falling rate of profit
highlighted by Marx, drawing out the role of foreign trade, imperialism and
technological innovation. Richta, for his part, developed Marx’s more-or-less
explicit position that capitalist relations of production found the ideal base for
their productive forces in the industrial revolution, and are unable to fully in-
corporate the next stage of development of said forces based on scientific la-
bour, a reduction in working hours and leisure time.
Marxism, the Annales School and ‘state science’ thus represent the leading
critiques of the liberal scientific paradigm which must be superseded if we are
to lift the global fog. But lifting that fog not only means critiquing and going
beyond liberalism’s methodological foundations: we must also theorise the
current period of crisis and transition known as globalization in a way that can
guide antisystemic practice. So how can these different critical approaches be
welded into an antisystemic theory of globalization?
3 For an Antisystemic Theory of Globalization
Immanuel Wallerstein sets out to integrate the critiques of liberalism into his
concept of the modern world-system. He uses this concept to build a structural
framework for understanding what he calls historical capitalism, seeking to
reconstruct capitalism’s historical trajectory as a dominant economic form by
transcending the limits of the concept of mode of production. Such an endeav-
our is supported by the work of Marx and Engels themselves. They never in-
tended to make modes of production an all-embracing concept – least of all in
the nascent stages of a new mode of production, when political and social
forces outweigh the material base.7
7 Marx and Engels argued that the rise of the capitalist mode of production presupposes a
long period of primitive accumulation, during which commercial and usurers’ capital, and in

18 Chapter 1
Capitalism therefore constituted itself as a dominant, globalising force be-

fore developing its own specific mode of production. But it could only actually
become a dominant force with the emergence of the modern world system.
The latter involves the formation of an interstate system articulated by a world-
economy that cuts across it via capital and commodity flows. This creates a
spatial asymmetry between politics and the economy and hence an asymmet-
rical power relationship between the two. Politics is geographically limited to
exercising sovereignty over specific territories and populations. In contrast, the
competition for profits between different private actors allows the economy to
move around the world, and so it can determine state policies in line with its
objectives. This superstructure, or “top floor” as Braudel described it, guaran-
tees capital a privileged relationship with the State, which it uses to ensure its
own reproduction and expansion.
The modern world system was established in the early 16th century and
continued expanding until by the 19th century it covered the whole planet. As
it did so it developed its main features: the world-economy, the national state,
the hegemonic state and systemic cycles. The hegemonic state plays a strate-
gic role in articulating the modern world system. Its job is to forge a world-
wide consensus around certain juridical and political principles that allows
for a monetary standard, contract law, limits to the global market and rules of
war and peace. It combines coercion and consensus – both of which derive
from its commercial, productive and financial power – to control the anarchy
of interstate relationships and ensure the system remains intact. But its pow-
er to contain the chaos borne of inter-state rivalry is limited. This is a systemic
requirement, because if one state enjoys permanent unbridled hegemony
then it could lead to the building of world-empires and the disappearance
of hegemonic nation-states. Systemic cycles consist of periods of expansion
(A-phases) and crisis (B-phases) of hegemonic states. Crisis is usually suc-
ceeded by systemic chaos and 30-odd years of world war. But as long as the
system displays good health and its secular trends continue, then the chaos
will be succeeded by a new hegemonic state that sets a new cycle in motion.
We shall return later to the modern world system as a concept, but our con-
cern here is to highlight its crucial contribution to an antisystemic theory of
globalization. It should be understood as the structural and political framework
particular their articulation with the State, are key to creating the conditions needed in order
to turn labour power and land into commodities and to direct resources towards industrial
investment. They also saw the communist mode of production as requiring a prior transi-
tional stage of communist society based on wage labour and the dictatorship of the prole-
tariat. See, especially, The Communist Manifesto (Marx and Engels 2002) and Critique of the
Gotha Programme (Marx 1938).

that facilitates the development of the capitalist mode of production.8 It is a

much broader point of historical reference for capitalist development. It should
not replace the notion of the capitalist mode of production, but rather be articu-
lated with it and understood concretely as a vital component of its develop-
ment. The modern world system precedes the capitalist mode of production,
but at the same time its potential for self-reproduction depends on the latter’s
material development and contradictions. Nonetheless, any approach that pri-
oritises the relationship between these two analytical categories must rethink
Wallerstein’s assumptions.
For Wallerstein, the modern world system should be considered the chief
reference point for understanding the development of historical capitalism. In
his account, historical capitalism is an inductive category which gives prece-
dence to empirical over theoretical investigation:
Capitalism is first and foremost a historical social system. To understand

its origins, its workings, or its current prospects, we have to look at its
existing reality. (…) I propose therefore (…) to try to describe what capi-
talism has actually been like in practice, how it has functioned as a sys-
tem, why it has developed in the ways it has, and where it is presently
heading. […] Historical capitalism, is, thus, that concrete, time-bounded
space-bounded integrated locus of productive activities within which the
endless accumulation of capital has been the economic objective or ‘law’
that has governed or prevailed in fundamental economic activity.
wallerstein 1996, 13–19
This approach effectively dissolves the idea of the capitalist mode of production
into the empirical reality of historical capitalism and prevents us from seeing
historical capitalism as a concrete phenomenon whose expansion parallels the
development of the capitalist mode of production’s more abstract laws. Whilst
we agree that historical capitalism precedes the capitalist mode of production,
we think it is a mistake to do away with the more abstract dimension of the
mode of production as a determinant of historical capitalism’s empirical de-
velopment and expansion.
Wallerstein’s omission leads him to define the capitalist mode of production
using strictly empirical criteria. He understands it as production for maximum
8 “(…), the political superstructure of the capitalist world-economy is an interstate system

within which and through which political structures called ‘sovereign states’ are legitimized
and constrained.” (Wallerstein 2000b, 14).

20 Chapter 1
profit and geared towards the market, which uses all and any kinds of labour to
achieve that aim:
If capitalism is a mode of production, production for profit in a market,

then we ought, I should have thought, to look to whether or not such
production was or was not occurring (…) This then resolves the problems
incurred by using the pervasiveness of wage labor as a defining character-
istic of capitalism. An individual is no less a capitalist exploiting labor
because the state assists him to pay his laborers low wages (including
wages in kind) and denies these laborers the right to change employ-
ment. Slavery and so-called “second serfdom” are not to be regarded as
anomalies in a capitalist system.
wallerstein 1979, 16–17
In fact, Wallerstein is following in Braudel’s footsteps.9 His attempt to synthe-

sise the different historical forms of capitalist accumulation leads him to omit
any theory of surplus value from his work and deny any structural link between
capitalism and a given set of productive forces. Braudel defined capitalism as
the zone of the antimarket and monopolies, in which accumulation relies
upon controlling the supply of certain products and combining with the State
in order to raise prices. This leaves a gap between the analysis of capital accu-
mulation and the theory of value. Such an understanding heavily influenced
not only Wallerstein but also other Braudelian world-system theorists, includ-
ing Giovanni Arrighi and Beverly Silver.
Historical capitalism is a key concept because it helps us to identify the con-
crete forces driving capitalist development. But it needs to be articulated with
the concept of modes of production. Marx never suggested that the development
of a concrete society could realise the general laws of its mode of production
in its purest form, because those laws only express its underlying tendencies.
Nevertheless, the concept of modes of production makes an important contri-
bution to historical analysis and a theory of the longue durée in that it
highlights the man-nature relationship as a necessary condition of human ex-
istence, and the role of labour in producing that existence.
The methodological premises and core concepts underpinning modes of
production were first set out by Marx and Engels in The German Ideology
9 Braudel (1983) draws attention to capitalism’s presence on the sugar plantations of colonial
Brazil, which he saw as capitalist creations par excellence despite yielding low rates of profit
and relying on slave labour.

(1989).10 In their account, men make their own history but in conditions of
material scarcity not of their own choosing that can only be overcome and
humanised through civilisational accumulation on the widest scale. This scar-
city is determined by the need to work to survive. But through working, men
not only survive but produce their own existence. They begin a process of
humanising nature which is only fully realised when the purpose of work is
determined by their own subjectivity, independently of the needs imposed by
nature. This happens when the productive forces have been developed to a
level where they systematically ensure survival independently of labour.
Man’s ability to satisfy his basic needs through labour sets him apart from
animals and generates specific thought patterns, feelings and sensibilities. By
producing the means to satisfy his needs, he increases his power over nature.
This leads to new needs, as does a growing population. But as Marx and Engels
observe, creating new needs is also related to the struggle for survival:
These three aspects of social activity [ensuring survival, satisfying new

needs and procreation – cem] – are not of course to be taken as three
different stages, but just as three aspects or, to make it clear to the Ger-
mans, three “moments” which have existed simultaneously since the
dawn of history and the first men, and which still assert themselves in
history today.
marx and engels 1989, 50
The productive forces, the relations of production and the ideological super-
structure function as an articulated whole which underpins the mode of pro-
duction and produces man’s way of life. Relations between man and nature
follow three general historical-structural models in Marx and Engels. In the
first, primitive communism, men are essentially concerned with reproducing
their physical existence, and the productive forces and relations of production
are still in an incipient form. The second model is characterised by class-based
modes of production. Here, the expanded production of the means of life and
rise in population combine to create new needs, and so society is organised
around producing a surplus. The third and final model is still imaginary and
utopian, but the conditions for it are already semi-visible. In it, scarcity will be
overcome by automated working and communist relations of production.
In the second such general model of man-nature relations, the productive
forces exercise a determining influence on social development as a whole.
10 The concept of relations of production, for example, is not fully developed in The German
Ideology, where it is described as the form, mode, relations or conditions of intercourse.

22 Chapter 1
They themselves are driven by the relations of production, which are one of
their components and define the social organization of any given mode of
production. Radovan Richta notes that for Marx and Engels the concept of pro-
ductive forces refers to the whole range of forces that produce human life (1969,
18) – not just the means of production and objects of labour, but also popula-
tion, labour power, labour relations and superstructure (systems of ideas,
values, feelings and forms of social organization). To understand the real com-
position of the productive forces in each historical structure or conjuncture,
i.e. the part played by each of these elements, we must look at how they act as
inputs in the productive process.
In this second model the means of production are the dominant productive
force. But as they continue to develop they contradict and eventually dissolve
social organisation’s chief form of labour.11 This is followed by a period of revo-
lutionary crisis, in which property relations assume a pivotal role in relations
of production in an attempt to prevent changes to labour relations and the
break-up of the dominant mode of production. Marx discusses this situation in
summarised form in the Grundrisse and A Contribution to the Critique of Po-
litical Economy (1859), notably the Preface.
Superstructures tended to play a marginal role as a productive force in this
historical-structural model. For a long time this was because thought systems
were not developed enough to systematically enter the productive process. But
that was not the only reason. It was also because with the development of so-
cial classes the thought systems, values, feelings and sensibilities of workers
and other popular sectors were excluded from economic decision-making.
This restriction on working-class subjectivity hit a high point with the Indus-
trial Revolution and Fordism.
However, the globalisation of the techno-scientific revolution has driven
changes in the makeup of the productive forces. This process began in the 1970s
with the microelectronic paradigm that came out of the convergence of elec-
tronic and communications technologies. The techno-scientific revolution has
helped superstructures to act as a productive force. They have achieved this
through science and through processes of social and political democratisation,
which put the thought systems, values, feelings and sensibilities of the popular
sectors at the centre of social organization and production. Productive systems
have been reconfigured by automation, integration, flexibility and remote
11 As was the case with serfdom in Western Europe when it was threatened by new farming
methods, in particular the crop rotation system. (Anderson 1985; Wallerstein 2011a). It can
also be seen in contemporary capitalism in the case of wage labour threatened by auto-
mation. (Richta 1969; Santos 1983, 1987).

c ontrol systems. Wage labour has come under threat because new technologies
tend to eliminate specialised, intensive manual labour and in its place require
subjective, skilled labour based on generic competencies, which is still inten-
sive but subordinates speed to quality. The investment to put into generating
this new paradigm of labour power on a mass scale increases the value of labour
power at an ever-greater pace and can diminish the rate of surplus value, thus
endangering the reproduction of the capitalist mode of production.
The productive forces thus clash with the relations of production and above
all their property relations and juridical-political instruments, which seek to
prevent any transition to a new set of productive forces dominated by the su-
perstructure. This represents a break with a structural setup where matter
takes precedence over thought and human will, which has thus far character-
ised societal organization.
The main points to keep in mind from the foregoing explanation of mode of
production theories are:
a. A theory of the longue durée ought to incorporate the general models of
relations between man and nature as set out by Marx and Engels. This
means acknowledging that structures break down not only because of
their developing internal laws (as the Braudelian approach suggests), but
because, as they develop, said laws incorporate a growing number of
components which contradict their own logic. The expansion of the pro-
ductive forces introduces elements belonging to a new material base
whose full incorporation demands the dissolution of the existing rela-
tions of production and the types of labour relations, distribution, ex-
change, consumption, property and political power at their core. This
quest to incorporate new stages in the development of the productive
forces whilst hanging onto existing relations of production is what leads
to the crisis of the mode of production.
b. Globalization is not the prolongation of a process underway since the
16th century. Instead it signifies a radical break with the makeup of the
productive forces: one which affects historical capitalism in contradicto-
ry fashion through a structural conflict with the relations of production.
Globalization pushes the law of value to its limit and points to a crisis of
surplus value production linked to the end of wage labour, which prefig-
ures the collapse of the capitalist mode of production.
c. An antisystemic theory of globalization should combine the ability to de-
scribe the fundamental contradictions of the law of value under histori-
cal capitalism – using the tools developed by Marxist theory – with the
integrated vision of the world economy’s political superstructure and
crises provided by world system theory through Fernand Braudel Center

24 Chapter 1
thinkers such as Immanuel Wallerstein, Terence Hopkins, Giovanni Arri-

ghi, and others.12
We should bring the State into our analysis of the crisis of the world economy’s
political superstructure. We should do this by describing its role in core, semi-
peripheral and peripheral countries in the crisis of the modern world system.
World-system theories, especially in Wallerstein’s version, have tended to
downplay antisystemic action by national states. In Wallerstein’s case this was
partly due to his superstructural perspective: his emphasis on the need to cre-
ate juridical and political frameworks on a global scale in order to overcome
historical capitalism led him to correctly criticise illusions of socialist develop-
ment in one country. But this critique also minimised any possibility of the
socialist movement accumulating forces by conquering political power in na-
tional states.13
In their 1848 Communist Manifesto, Marx and Engels called not only for
international proletarian unity, but also for conquering state power as a neces-
sary step along the way that goes hand in hand with building the broadest pos-
sible movement for world socialism (Marx and Engels 2002). This is because
however close capitalist society gets to monopoly forms it is still based on gen-
eralised commodity production, and its supersession must start from the eco-
nomic, social, political and ideological fragmentation that entails.
Undoubtedly, the disconnect between regional revolutionary upheavals and
the overthrow of capitalism globally has seriously limited any articulation of
the national and the global. But today, as historical capitalism’s secular trends
expose its weaknesses in the face of structural crisis, the conquest of political
12 Within Marxism, theories of dependency went furthest in developing an analysis of how

the law of value operates globally. But their analysis failed to account sufficiently for
systemic cycles. Theotonio Dos Santos did most to bridge the gap between dependency
theory and world-systems analysis, of which he was a precursor. By 1971 he had already
anticipated the decline of US hegemony in La crisis norteamericana y América Latina
(1971). But his conjunctural analysis, especially where it addresses the return of long-term
growth in the mid-1990s, fails to fully integrate the systemic crisis, which he acknowledg-
es, with Kondratiev cycles. Other dependency theorists like Ana Esther Ceceña and Or-
lando Caputo are sceptical of systemic cycles.
13 In a 1974 article for the African Studies Review, Wallerstein described socialist states as
“collective capitalist firms,” because despite having created juridical regimes based on
public ownership they still operate within the competitive framework of the modern
world system (Wallerstein 1974). In a collection of writings from 1974–77 he republished
the piece alongside his own criticisms of it:
“I now believe that the formulations in this essay are incomplete and can lead to some
confusion. In particular, I do not clarify the distinctions between semiperipheral states
that have socialist governments and those that do not. In a subsequent essay (Ch. 5 be-
low) I do discuss this question quite specifically” (Wallerstein 1979, 92).

power by socialist movements in national states, above all in the periphery and
semi-periphery, is destined to play a crucial role in the transition from a mod-
ern world system to a truly global one.
To gain a better understanding of the period of crisis and transition which
has opened up since the end of the 1960s, we propose combining the following
levels of analysis:
a. The falling rate of profit crisis, which shows that the power of the capital-
ist mode of production to appropriate the productive forces is running
out and that said crisis is linked to the development and generalisation of
the techno-scientific revolution and the new technological paradigm. It
manifests itself as a global crisis not only of surplus value production but
of surplus value appropriation.
b. Systemic cycles of accumulation, systematised by Braudelian world sys-
tem theories. According to such theories, humanity entered a period of
hegemonic crisis in the late 20th century. This crisis is dragging the mod-
ern world system into a chaos that it will find hard to emerge from.
c. Kondratiev cycles, which are one of the keys to understanding conjunc-
tures. In Nicolai Kondratiev’s theory these cycles are organised around
technological innovation, organisational restructuring and the impact of
both these factors on profit rates.
Articulating these three levels of analysis will give us a clearer insight into the
crisis of the modern world system as it continues to unfold over the coming
decades, along with the alternatives available to the world and dependent
countries in particular. In the next chapter we apply these different levels of
analysis to the development and crisis of the modern world system.

Chapter 2
The Modern World System and Capitalism: Origins,

Cycles and Secularity
1 The Modern World System and Its Origins
The modern world system was introduced as a concept by Immanuel Waller-

stein in the first of his 4-volume tour de force of the same name (2011a). The
author posits three types of system: mini-systems, world-empires and the
modern world system. Of these, only the latter creates a political superstruc-
ture suited to capitalist development.
A mini-system is a social formation that constitutes an economic, political
and cultural unit. Mini-systems cover a limited geographical area and host an
incipient division of labour, which produces a surplus, albeit with some diffi-
culty. Their main problem lies in producing enough to survive on in the ab-
sence of physical or market-driven coercion of labour. They also risk being an-
nexed by other systems, as indeed they were by expanding global empires
between 8000 bc and 1500 ac.
World-empires are formations that articulate a division of labour and
several cultures through a certain political unity. For Wallerstein, they repre-
sent r edistributive modes of production, that is, their division of labour was
sufficiently advanced to produce an economic surplus, which ensured soci-
ety’s survival and supported an upper administrative, military and intellectual
stratum. Once in charge of the state apparatus, this upper caste used coercion
to control the surplus that guaranteed their own existence. Here, Wallerstein
uses the term mode of production in a very specific sense. Unlike in Marxist
theory, he does not mean a specific labour relation which produces existence,
but first and foremost the kind of political superstructure which relies on
state coercion to extract an economic surplus through different forms of la-
bour.1 World-empires embody a major contradiction: on the one hand, they
1 The differences between feudal, slave and Asiatic modes of production set out by Marx are
diluted by the superstructural concept of tributary mode of production, as the following pas-
sage illustrates: “The states were of varying sizes and internal forms. They were sometimes
very extensive over time and space with elaborate bureaucracies (Ancient Rome, China),
sometimes smaller but still very centralized, or extensive but with a very atrophied center (as
in feudal Europe or in the early Middle Ages). […] But as a mode of production, all the varia-
tions retained the same essential core: the ruling groups pressed the direct producers to pro-
duce a specified surplus over their direct consumption needs (which amount could vary), but

The Modern World System and Capitalism 27
must develop their political machinery and expand geographically to contain

internal and external r ivals, yet this expansion also leads to a disproportionate
growth in state bureaucracy and parabureaucracy, giving rise to deficits and an
excessive peasant tax burden which then triggers political revolts and crises.
The cycles of expansion and contraction experienced by world-empires are
related to these crises.
The interstices of world-empires harbour developing world-economies.
These are economic units that link up various political and cultural units.
When world-empires were dominant, the proliferation of world-economies
was conditional upon imperial cycles of expansion and contraction. In periods
of crisis they developed, but in periods of expansion they were absorbed by the
empires, which used their political power to appropriate most of the wealth
generated by the world-economies. Wallerstein acknowledges that world-
economies hosted a nascent capitalism, but highlights their lack of continuity
and inability to forge a superstructure that would allow it to develop.
This situation would change when the European world-economy gave rise
to the modern world system during the long 16th century (1450–1650). For the
first time, a world-economy managed to turn domination by world-empires on
its head and take the first steps towards incorporating the whole world. But
what was so different about the European economy that it should become a
historical exception? For Wallerstein the difference resided chiefly in the crisis
of feudalism, which was a specific type of crisis because it affected a particular
redistributive mode of production. He argues that feudalism’s crisis was the
result of three trends (secular, cyclical and climatological). These three ten-
dencies all converged to trigger a crisis of feudalism’s main institutions: the
Church, the State and seigniorial power. The most important among them was
the secular trend, as it showed the exhaustion of the power of surplus appro-
priation in its feudal form.
Political power structures were far less centralised under feudalism than in
other redistributive modes of production, such as the Asiatic one. This was a
result of the Roman Empire’s disintegration. Feudalism’s unity as a world-
system relied more on the Church than the State.2 Central power was more
they also produced no incentive (and some positive disincentives) for producing more than
the specified surplus.” (Wallerstein 2000b, 151).
2 Although we agree that feudalism falls within the category of world-empire (as its political
institutions tried, somewhat precariously, to become more centralised), as a mode of produc-
tion it had certain unique features compared to the vast central bureaucracies created by the
Asiatic mode of production. European feudalism can be most accurately described as a po-
litically unified system which connected various economies and cultures but was unable to
establish a more articulated division of labour, which prevented it from becoming as central-
ised as the Asiatic mode of production.

28 Chapter 2
restricted in its ability to control markets and private power, especially on the
Roman Empire’s western periphery. The crisis of feudalism gave its institu-
tions, led by the seigniorial reaction, the chance to reinvent their relationship
with the State – a chance they seized between 1450 and 1650.
The crisis of the feudal mode of production was expressed in the decline of
feudal rents. Wallerstein shows that the crisis originated with the rise in agri-
cultural labour costs between 1250 and 1450. Several factors explain this rise,
with migration chief amongst them. Migratory movements were behind the
huge growth of cities in the 13th century and were driven by the increase in
trade thanks to new agricultural techniques introduced from the 9th century
on, which made it possible to support a growing urban population. In Lineages
of the Absolutist State (2013), Perry Anderson argues that the main source of
feudal society’s structural crisis lay in the relationship between monetisation,
peasant migration, and the end of rural servile labour.3 Agricultural produc-
tion costs were also increased by peasants fleeing the first stage of the seignio-
rial reaction and by population loss from starvation.
The first seigniorial reaction (1350) was a strategy aimed at recovering the
power to extract a surplus. This attempt to augment traditional forms of sur-
plus extraction heralded a dramatic period for European society, featuring
wars of nobility, peasant revolts, major population decline (due to epidemics
like the Black Death) and the cultural crisis of the Christian synthesis. After
1450, the seigniorial reaction was more preoccupied with creating a new world-
system that would extend the geographical reach of the world-economy as a
means of reducing labour costs in Western Europe whilst increasing surpluses.
This Portuguese and then Spanish-led expansion of the world-economy would
anticipate many features of the modern world system, including (a) the
creation of a world-economy enlarged by the inclusion of new areas (the
Americas) and dedicated to the production of basic goods or supplies of vital
importance to the European economy, such as metals for manufacturing coins,
foodstuffs to reduce Europe’s calory deficit, and fuel; and (b) an international
3 “The changes in the forms of feudal exploitation which supervened at the end of the medi-
eval epoch were, of course, far from insignificant. […] The new form of noble power was in its
turn determined by the spread of commodity production and exchange, […] With the gener-
alized commutation of dues into money rents, the celular unity of political and economic
oppression was gravely weakened, and threatened to become dissociated (the end of this
road was ‘free labour’ and the ‘wage contract’). The class power of the feudal lords was thus
directly at stake with the gradual disappearance of serfdom.” (Anderson, 2013: 18–19).
Wallerstein underplays the crisis of servile labour as the main component of the secular
trend that drove forth the transformation of feudalism, preferring, as we have seen, to high-
light superstructural aspects.

division of labour controlled directly or indirectly by Western Europe and di-

vided into three zones – core, semi-periphery and periphery – according to the
technological intensity of their products and how work is controlled.
Wallerstein argues that the international division of labour was a radical
new development crucial to the establishment of historical capitalism. It al-
lowed production costs to be compared and for a vast array of goods to appear
on the world market. This created a very different context for the organisation
of the world-economy. Previously, lack of control over the generation of pro-
ductive resources in the regions of world-empires had raised the price of goods
far higher than production costs, because prices were determined politically.
This situation meant the world-economy was limited to trading in rare luxury
goods, because that was the only way it could generate profits given the high
commercial cost of inputs. The conquest of the Americas made it possible to
overcome these barriers and develop a division of labour that connected the
Americas with Eastern and Western Europe. In the former, slavery and serfdom
were used to extract the silver needed to make coins and produce consumer
goods (e.g. sugar, ink/dyes and rubber/glue for clothing). Eastern Europe’s role
was to produce cereals and timber, again through serf labour. And Western
Europe developed livestock farming, food production and the textile industry.
Meanwhile the Low Countries, notably the United Netherlands, specialised in
shipbuilding and fishing, allowing them to control the Baltic cereal and timber
trades. In general, wage labour and tenant farming predominated in these
regions.
The proliferation of fairs across Europe meant world-economy products
could be distributed more widely through the use of strategic storage points.
But a political structure adequate to the organisational form of the world-
economy still had to be developed. This required the political and financial
exhaustion of the imperial forces of the French (Valois) and Spanish (the
Habsburgs), which came firstly with the Peace of Cateau-Cambresis (1559),
and later with the Spanish defeat by the United Netherlands, which was
marked by the Peace of Westphalia (1648). These two defeats signalled the end
of the European empires and their attempts to annex the continent. Their
place was taken by absolute monarchies, who at Westphalia formally accepted
the territorial limits of their sovereignty in Europe and the free flow of capital
and goods regardless of political and military tensions.
The imperial form was nevertheless crucial to historical capitalism’s initial
expansion. As Giovanni Arrighi notes in The Long Twentieth Century (1996),
the sheer costs involved would have discouraged purely capitalist forces from
embarking on the colonial adventure that paved the way for the international
division of labour. There had to be a convergence between forces seeking to

30 Chapter 2
accumulate unlimited territory (T-T`) and those looking to accumulate unlim-

ited wealth (M-M’). Thus Iberian colonisation of the Americas was chiefly
financed by city-states – mainly Genoa – and south German merchant bankers.
By lending money to the Spanish Empire and the trans-oceanic trade (Genoese
shipowners) they forced Spain to share the surpluses from colonial exploita-
tion and deduct the administrative costs of colonisation from its takings.
The empires, however, were unable to keep this partnership going. Their
global ambitions led them to reject mercantile policies, restrict manufactur-
ing, and spend vast amounts on the military costs of upkeep and expansion.
This bred financial dependence on the outside world. Without proper bureau-
cratic structures or overseas possessions closer to home, tax revenues were
poor. The persecution of Protestantism added to this dependency as it forced
bankers, traders and business owners into exile. These tendencies could only
end in political and financial crisis for the empires and their bankers.
The Spanish defeat at Westphalia (1648) marked the birth of the interstate
system and, for Wallerstein, the modern world system, thus bringing the long
16th century to a close. Thereafter the modern world system developed through
cyclical movements that would eventually encompass the whole planet. But
before examining that process, let us turn to some of the debates around
Wallerstein’s theses.
One critique of Wallerstein’s theses comes from Fernand Braudel, for whom
capitalism emerged with the expansion of European city-states between the
11th and 13th centuries. For Braudel, the city-states lay at the centre of the
European world-economy until the early 18th century, when they were re-
placed by nation-states. Claiming that his differences are of degree rather than
substance, Braudel minimises the contrast in Wallerstein between world-
economies and world-empires by arguing that an oppressed and besieged
world-economy can still survive in a world-empire. In this sense the European
case is special because feudalism also diminished the central power’s coercive
capabilities, leaving the world-economy in question ‘free’ to develop within
the world system. Capitalism emerged out of feudalism and superseded it as a
result of the expansion of the world-economy itself. The following excerpts
from Braudel serve to elucidate his position:
Immanuel Wallerstein has argued that wherever there was an empire,

the underlying world-economy was unable to develop – that its career
was stunted. […] All the same, I am personally inclined to think that even
under the constraints of an oppressive empire with little concern for the
particular interests of its different possessions, a world-economy could,
even if rudely handled and closely watched, still survive and organise

itself, extending significantly […] To return to the European example,

can we not say that it escaped very soon from the stifling embrace of
empire? The Roman Empire was at once more and less than Europe; the
Carolingian and Ottoman Empires had little control over a Europe al-
ready in decline. The Church, while it succeeded in extending its culture
over the entire surface of Europe, failed in the end to establish its politi-
cal supremacy.
[…]
The predominance of the city-state can only be explained in the context
of the first world-economy ever to take shape in Europe, between the
eleventh and thirteenth centuries. It was in this period that the extensive
trading zones were established of which the cities were at once the in-
struments, the articulations and the beneficiaries. The birth of Europe,
that monstrous shaper of world history, took place not in 1400, the start-
ing-point of this book, but at least two hundred years earlier.
braudel 1984: 54–55, 92
Writing in 1998 for the Fernand Braudel Center Review, Giovanni Arrighi adopts
a midway position between Braudel and Wallerstein. Whilst acknowledging
the role of cities in the rise of capitalism, he also points out that capitalism was
only able to consolidate its presence through the articulation of city-states
with territorial powers. For Arrighi, the crisis of feudalism was irrelevant to
capitalism’s emergence, which should instead be located in cities and their
interstitial growth in and between different ‘worlds.’4 City-states connected
territorial organizations with each other and with other worlds, and became
centres of wealth accumulation based on long-distance trade, including a mo-
nopoly on the trade in rare goods. The competition between territorial organ-
isations for mobile capital fuelled this city-state-centred accumulation whilst
also stoking politico-military conflict between them. And whilst this did not
alter the European balance of power, it certainly set the stage for a transforma-
tion of the power relations between Europe and the rest of the world.
4 The crisis of feudalism and the so-called transition from feudalism to capitalism in European
agriculture are no doubt very relevant to an understanding of English, French, Polish, Ger-
man and many other “national” histories of the European world. They nonetheless are largely
if not entirely irrelevant to an understanding of the origins of world capitalism for the simple
reason that world capitalism did not originate within the economic activities and social rela-
tions that were predominant in the larger territorial organizations of the European world.
Rather, it originated in the interstices that connected those larger territorial organizations to
one another and their totality to other “worlds.” (Arrighi 1998, 120).

32 Chapter 2
In Arrighi’s account, the crucial aspect of the transition to the modern world
is not the change from feudalism to capitalism, but from an interstitial capital-
ism based on the city-state system to a capitalism built on nation-states. The
zero point of capitalist development was the financial expansion unleashed
when the trade expansion of the 13th and early 14th centuries ended. Genoa
played a key role in this process. Faced with military obstacles on the Mediter-
ranean route to Asia, conflict between incipient mercantilist policies, and the
territorial expansion of other Italian city-states, it joined forces with the Span-
ish Empire to finance the pursuit of endless accumulation. As it was the weak-
est city-state in terms of territorial power, Genoa gave up on capturing trade
routes by force and instead opted for a “marriage of convenience” with the
Spanish, bankrolling their imperial expansion in return for protection. Subse-
quently, the military defeat of the Spanish endeavour made it possible to build
nation-states (Arrighi 1996).
Braudel and Arrighi’s criticisms of Wallerstein nevertheless do not help so
much in forging a theory of the longue durée because they divorce the rise of
capitalism from its structures and bypass its particular systemic features.5
Braudel suggests that feudalism survived into capitalism thanks to the growth
of cities, beginning in the 11th–13th centuries. But that is to ignore the theoreti-
cal and historical space in which the feudal mode of production entered into
crisis and the modern world system emerged as the ideal superstructure for
the development of historical capitalism.
Polemicising with Braudel, Wallerstein notes that although world-econo-
mies had indeed existed in Antiquity and the Middle Ages (alongside the first
signs of capitalism), they only became hegemonic with the advent of the mod-
ern world system:
Ten years ago I did not accept the existence of multiple world-economies,
but you have managed to convince me. I now accept the existence, before
the 16th century, of these world-economies, but I believe that each of
them, due to the internal contradictions of its structure, either disinte-
grated or was transformed into world-empire. For one odd reason that
ought to be explained, that was not the fate of the world-economy con-
structed in the 16th century; in consequence, it was from then on that real
capitalism emerged.
braudel et al., 1989: 119
5 In Braudel and Arrighi the difficulty of separating the rise of capitalism as a historical system
from its local expressions can be seen by their relative inability, theoretically and historically
speaking, to imagine the exhaustion of capitalist structures and the need to go beyond them.
We look at this issue in greater depth in the next chapter.

The spread of cities should be seen as part and parcel of the development of
the feudal mode of production. It is not surprising that the leading Italian city-
states were located in areas ill-suited to rural life, where they grew on the back
of higher agricultural productivity but were constrained by existing power re-
lations. At a certain point this increase in productivity began to pose a threat
to feudalism. But cities alone do not explain the transition from the Middles
Ages to the Modern Age. In this sense Arrighi is right in his criticism of Brau-
del. But he fails to fully explain why territorial powers articulated themselves at
a given point with city-states and respected their autonomy and interstitial
condition given that, despite representing centres of accumulation, they were
still militarily vulnerable.
Answering this question means accepting the proposition that the Europe-
an territorial powers sought to resolve the crisis of feudalism by building a
capitalist world-economy. Unable to bring the developing market economy,
which was threatening feudalism, under a unified imperial command, the ter-
ritorial powers set about redefining the State. The market economy’s origins
lay not in the cities – although it was most visible there – but in rising produc-
tivity in the countryside. This could not be fought by military means and it
triggered peasant exoduses which reduced the surpluses appropriated by the
rural nobility and dissolved feudal labour relations. In effect this meant the
exhaustion of secular trends which could not be overcome by a new expansion
of the feudal system. The territorial powers started by joining forces with city-
based financial and commercial capital to build a world-economy that would
bring the cost of peasant labour back down and increase surpluses. They later
abandoned any imperial pretensions of politically centralising the world-
economy and turned their empires into absolute monarchies. These monar-
chies were hegemonised by mercantile and financial capitals and turned into
vast bureaucracies which sealed their alliance with the territorial nobility by
making many of them Court nobility. Starting with Westphalia, this represent-
ed a big step towards recognising the territorial limits of absolute sovereignty
because it separated political tensions from international economic relations.
This separation was reinforced by the notion of the sovereignty of the people,
which took hold during the French Revolution and reached maturity in the
latter half of the 19th century.6
6 Wallerstein argues that the French Revolution adapted the ideological superstructure to the
political and economic changes that took place when the modern world system was con-
structed. In his view the Revolution was the moment when, from the standpoint of the capi-
talist world-economy, the ideological superstructure was brought in line with the economic
base. The Revolution did not represent fundamental transformation from a political or

34 Chapter 2
Another critique of Wallerstein’s understanding of capitalism and the world

system can be found in the post-1990 writings of André Gunder Frank. Along
with Barry Gills, he develops a new theory of the world system. Rejecting the
idea of a modern world system, they assert that a world system has existed
ever since Egypt and Mesopotamia became connected 5,000 years ago (i.e.
since 3000 ac). It is a system based on accumulation, in which production is
just a means for capital and consumption. At the same time they argue that
the concept of mode of production should be replaced by that of mode of ac-
cumulation (either private, state sector-led, or a combination where one form
prevails), and that feudalism, capitalism and socialism represent ideological,
anti-scientific concepts:
The world system wide reality is the competitive dog-eat-dog war of all
against all (à la Hobbes), in which only the few can win and the many
must lose. And so it has been for millennia, thanks to the world system’s
unequal structure and uneven process, which Wallerstein helps us
identify.
frank and gills, 1996: 215
For Frank and Gills, the fact that most East-West exchange involved luxury
goods does nothing to invalidate the notion of a single world system encom-
passing the two regions. In fact, they argue, luxury goods are one of the mate-
rial forms of the surplus and their circulation supports the theory of an
expanding millennial world system. But the authors fail to perceive that for
accumulation to develop on a global scale, its agents must be fully able to com-
pare product costs and prices across different regions. Otherwise it remains
stunted and politically and socially unstable. The fact that exchange was con-
centrated in luxury goods reflects the political obstacles world-empires put in
the way of cost comparison, thereby limiting the development of a globally
integrated mode of accumulation.
If Frank and Gills were to describe the process of capital accumulation as
capitalism then their vision would resemble Weber’s thesis (1930, 1978) that
e conomic perspective, because the modern world system already had a structure (1998a: 72).
Although we agree with Wallerstein that the capitalist world-economy was already struc-
tured as an interstate system, the ideological turn represented by the French Revolution –
which by the late 19th century had been assimilated into the capitalist world-economy via
political acceptance of the idea of the sovereignty of the people – was crucial to the develop-
ment not just of the modern world system’s cultural superstructure, but also its political
superstructure.

capitalism is defined by the quest for surpluses. But their ideas are located at
an even higher level of abstraction. This makes it very hard to trace the history
of structures, because it reduces their historico-specific concepts to a very gen-
eral framework.
Another critique of Wallerstein’s thesis comes from Samir Amin (1997), who
locates the origin of the world system in the capitalist mode of production. We
expressed earlier our reservations about an approach which gives the infra-
structural aspects of modes of production so much precedence over their su-
perstructural aspects. As we saw, the construction of modes of production
starts with the superstructure – notably political control – which then grows
material roots. It is as these material roots take hold and develop that they
condition the superstructure as a whole and enable its overhaul.
2 The Modern World System and Capitalist Development
Historically, then, capitalism’s development has always been articulated with

the modern world system. With this is as our theoretical and methodological
framework, we can identify five main trends which allow us to reconstruct
capitalist development as a concrete historical totality: the unlimited expan-
sion of circulating capital; uneven and combined development; systemic cy-
cles; Kondratiev cycles, and the tendency for profit rates to fall.
2.1 Endless Accumulation and Uneven and Combined Development

The limitless expansion of capital circulation is the core developmental fea-
ture of a predominantly capitalist system. We saw that this requires a system
based on territorially limited political organizations, which are inter-connected
via the capital and commodity flows of an international division of labour. As
States are limited to specific territorial spaces, they cannot use force to inter-
vene in other capital and commodity chains outside their geographical space,
and if they do so within their own geographical space they risk being passed
over by international capital flows in search of the highest rates of profit.7
Capital’s unlimited expansion means competition for superprofits are only
achievable under monopolies. The latter allow prices to deviate from value and
instead be determined either by state coercion (via the ownership of land/
scarce natural resources/populations, or via restrictions on exchange or the
7 State intervention in capital and commodity chains must trigger a rise in profit rates if it is to
succeed in attracting global capital.

36 Chapter 2
circulation of capitals), or by technological factors, or by both (via state sup-

port for businesses or particular sectors via credits, subsidies, government pur-
chasing, patents, etc).
During the hegemony of commercial capital, state coercion was needed to
make profits and superprofits, and was the key to transforming the formula
C-M-C into M-C-M’ – the basis for commercial capital.8 Colonisation and the
metropole’s monopoly over colonial trade responded this need.9 It was only
with the development of the capitalist mode of production that the pressure of
competition forced productive capital to grant a share of the surplus value pro-
duced to commercial capital in order to create a specialisation which would
enable the uninterrupted articulation of finance, production and trade.
The more the capitalist mode of production develops, the more the appro-
priation of superprofits depends on obtaining extraordinary levels of profit.
They are initially obtained via a technological monopoly which enables pro-
ducers to sell commodities at prices above their individual value as determined
by the amount of abstract labour their production requires. Extraordinary
profit represents a change in the way surplus value is distributed, not an in-
crease in the amount produced.10 As such it signifies surplus value appropri-
ated by an individual capitalist with no equivalence in production. However,
this transfer and appropriation depends on the intensified inter-capitalist
competition that follows when the State helps open up new markets.
Superprofits and extraordinary profits create an unequal international di-
vision of labour in the world system. Some regions (the peripheries) are
negatively affected by surplus value appropriation and sell commodities at
prices below their value, while others (the core areas) benefit from it and sell
commodities above their value. Then there are regions where these two
movements cancel each other out (the so-called semi-peripheries). In the
8 Marx notes in both the Grundrisse and Capital that the transport of commodities under
the direction of commercial capital is productive labour that adds surplus value to the
product. But that surplus value only represents a small fraction of the product’s value and
is not enough to meet capital’s valorisation needs under the hegemony of commercial
capital. Therefore commercial capital must use coercion to appropriate value created by
precapitalist forms of production.
9 This issue is addressed in Fernando Novais’s (1974) classic Portugal e o antigo sistema colo-
nial (1777–1808).
10 It is not only extraordinary profits that cause the price of commodities to deviate from
their value: prices of production produce the same effect by levelling the profit rates of
capitals of different organic and technical compositions. Both relate to technological mo-
nopoly, and prices of production associate the free flow of capitals and commodities to
this monopoly.

system as a whole these surplus value transfers go beyond their original con-
dition and create new stages of polarisation which drive uneven and com-
bined development in the capitalist world-economy:
The division of a world-economy involves a hierarchy of occupational

tasks, in which tasks requiring higher levels of skill and greater capitaliza-
tion are reserved for higher-ranking areas. Since a capitalist world-
economy essentially rewards accumulated capital, including human
capital, at a higher rate than “raw” labor power, the geographical maldis-
tribution of these occupational skills involves a strong trend toward self-
maintenance. The forces of the marketplace reinforce them rather than
undermine them. And the absence of a central political mechanism for
the world-economy makes it very difficult to intrude counteracting forces
to the maldistribution of rewards.
wallerstein, 1976: 350
The centres typically insert themselves into the world economy by organising
a base of high quality use values. Their ability to compete for circulating capital
is linked to their ability to offer a powerful national system of innovation,11 po-
litical stability and security. This is how they become the nodes articulating
global capital and commodity chains. They thus become global financial cen-
tres. In contrast, peripheries compete in the world-economy through their
ability to offer low-cost services. The periphery does not compete for circulat-
ing capital on the basis of a quality differential in its base of use values but
rather because it can offer certain use values at a lower and deferred cost. The
price of labour power becomes the key to reducing the costs of the services
offered. Meanwhile, the semi-periphery is in an intermediate position: it can
11 The concept of a national system of innovation was introduced in the late 1980s by Chris-
topher Freeman in his studies on Japan (Freeman 1987, 1988). It was later developed by
Bengt-Åke Lundvall (1992) and Richard Nelson (1993), and much was written about it sub-
sequently. In his overview of the idea, Charles Edquist highlights its contribution to the
literature on innovation. Essentially, he argues that traditionally the literature has empha-
sised research and development (R&D) centres and explicitly innovation-focussed organ-
isations, but that the new approach goes much further, bringing out the role of political,
economic and educational institutions and their aims. A national state entails knowl-
edge, values, norms, routines, laws, objectives and interaction that together constitute an
environment that either tacitly or explicitly favours innovation (Edquist 1997, 49). The
systemic aspect to the concept of a national system of innovation stresses interaction as a
core component of innovation which cuts across organisations and institutions and plac-
es value on learning by interacting, learning by doing and learning by using.

38 Chapter 2
attract capitals on the basis of both the quality and low cost of its assets. So by
offering a variety of use values, the semi-peripheral state can choose whether
to specialise in high quality services – in principle more advantageous – or in
low cost services, which would relegate it to the periphery.
For Wallerstein and Arrighi, however, it is not enough just to want to be-
come part of the centre in the modern world system, and semi-peripheral or
peripheral regions very rarely achieve this.12 The competitive environment in
which historical capitalism develops is a powerful barrier to doing so. On the
potential for semi-peripheral states to adopt status-raising policies, Waller-
stein argues that
This sounds voluntaristic, and to some degree it is. Intelligent state poli-
cies have much to do with what happens. But two caveats must immedi-
ately be added. First, state policies are not prime movers but intervening
processes. Secondly, not every state machinery can utilize any given set of
policies with the same expectation of happy result. Indeed, quite the
contrary. Many may try, but only a few succeed in significantly transform-
ing the rank of their state in the world division of labor. This is because
the very success of one eliminates opportunities and alternatives for
others.
wallerstein 2011, 179
Changing rank usually requires the presence of two factors: an internal catch-
ing-up policy in the semi-peripheral country aimed at pushing it to the fore-
front of new technology, and the support of the world system’s financial
centres. The latter may support development in a region because of a political
need to bolster a particular hegemony by allying with local ruling elites.13 But
concessions made on that basis risk limiting hegemonic power over the medi-
um to long term. Changes of rank in the modern world system are especially
important when a systemic cycle enters its crisis phase. Usually in such periods
12 In A ilusão do desenvolvimento (1997a) Giovanni Arrighi examines changes of rank be-

tween the core, semi-periphery and periphery during the rise of US hegemony, showing
how rarely they actually occur.
13 This was the case with US concessions to the development of Asian capitalism. In Japan,
South Korea and Taiwan especially, it offered cheap credits, paid foreign exchange to
maintain military bases, and accepted local protectionism and restrictions on foreign
capital entering the productive sector. These concessions injected dynamism into the re-
gion, helping it launch the biggest of all challenges to the economic and technological
foundations of US hegemony in the 1980s.

the hegemonic power in crisis seeks a successor with whom to ally from a posi-
tion of privilege.
Systemic crises bring reconfigurative hegemonic shifts and polarisation. So-
cial divisions sharpen, the middle stratas within nation-states hollow out, and
globally the size of the semi-periphery shrinks.14 But such crises also mean that
dominant models break down and opportunities arise for mobility within the
14 Wallerstein points out that the semi-periphery is not an absolute fact of the modern
world system but a historical configuration, which plays a vital role in keeping it stable
and intact. Whenever it shrinks, political and institutional instability increases in the
world system. Its structural function is to foster the belief in ascent in historical capital-
ism, either from the semi-periphery to the core or from the periphery to the semi-
periphery (however unlikely in most cases), and to reduce the sense of polarization. The
limited upward mobility that does exist encourages semi-peripheral and peripheral coun-
tries to compete with each other to ascend and influences the path they go down ideo-
logically as they become integrated into historical capitalism: “The semi-periphery is then
assigned as it were a specific economic role, but the reason is less economic than political.
That is to say, one might make a good case that the world-economy as an economy would
function every bit as well without a semi-periphery. But it would be far less politically
stable, for it would mean a polarized world system.” […] “We are not saying that three tiers
exist at all moments. We are saying that those on top always seek to ensure the existence
of three tiers in order to better preserve their privilege, whereas those on the bottom
conversely seek to reduce the three to two, the better to destroy this same privilege.”
(Wallerstein 1979, 23, 223).
For us, the semi-periphery is undoubtedly a key factor in bringing political stability to
the world-economy. But we do not see it as the only factor. The prospect of super-exploit-
ing labour often does much more to integrate individual elites into the world-economy
than the simple expectation that a country might ascend a tier. The clearest example of
this is the willingness of dependent country bourgeoisies to appropriate super-exploited
labour in order to project themselves in the world-economy even if at the expense of their
own country’s ranking in it. If a political, institutional or economic crisis threatens such
appropriation then it can derail said elites’ integration into the world-economy. That was
the only reason many peripheral countries opposed rules against social and ecological
dumping at the wto’s 3rd Conference, displaying unprecedented autonomy from the po-
sitions adopted by the Clinton-led US government in the 1990s. Nevertheless, similar ex-
amples can also be found in core countries, albeit on a more limited scale given that, as
we have seen, the long-term positioning of a particular bourgeoisie depends on the qual-
ity of its use values. Under British hegemony, the prospect of colonial conquest served to
keep liberalism relevant to inter-European power relations even after it had caused the
semi-peripheralisation of the economy’s centre between 1820 and 1870. (Maddison
2001, 185).
Although this liberalism suffered from the rise of protectionism and movements of
national unification, it was only with the final carve-up of the world – and the obstacles
that put in the way of European bourgeoisies adding to their reserves of super-exploited
labour in the colonies – that nationalism and liberalism could no longer coexist, thus
ramping up national tensions and pushing the world towards the systemic chaos of
1914–1945.

40 Chapter 2
interstate system. In times of systemic stability and growth its structural deter-
minations are solid enough to stifle antisystemic movements. It is very hard for
any country to switch rank in such periods. But during a systemic crisis its de-
terminations are unstable and open the way for a sweeping reconfiguration.
Unchecked, this process can undermine polarisation itself. But the system’s
secular trends, tied to endless accumulation, limit the extent of any reconfigu-
ration and reactivate the underlying forces of historical capitalism.
2.2 Systemic Cycles

Systemic cycles are linked to the ascent and crisis of hegemonic states in the
modern world system.15 As noted earlier, the modern world system is organ-
ised around an international division of labour whose commodity and capital
chains cut across national states. Territorial limitations prevent States from
controlling such chains by force. This guarantees the power of the economy
over politics. But in order to function the system must avoid the anarchy that
would ensue were each state to pursue its own interests. To limit the chances
of that happening and breaking up the international division of labour, there
must be one hegemonic state. That state will use its hegemonic power to con-
dition different individual interests to the general, systemic interest. That is
how the rules of global trade and capital circulation are written, the global
currency is defined, and the dividing lines between peace, diplomacy and war
are drawn.
World systems theory has defined the concept of hegemony in different
ways. In Wallerstein’s limited definition, for example, it means a brief period
when one power enjoys productive, commercial and financial superiority over
others.16 This occurred in 1625–1672 (Dutch hegemony), 1815–1873 (British he-
gemony) and 1945–1968 (US hegemony). He finds that these periods share a
number of common characteristics:
15 We must acknowledge Immanuel Wallerstein as the best theorist of the modern world
system concept, and Giovanni Arrighi, as the best thinker of hegemony and the systemic
cycle notions.
16 During hegemonic periods, the hegemonic power sells its competitively priced products
on other core countries’ internal markets. As Wallerstein notes, “Hegemony involves more
than core status. It may be defined as a situation wherein the products of a given core state
are produced so efficiently that they are by and large competitive even in other core
states, and therefore the given core state will be the primary beneficiary of a maximally
free world market. Obviously, to take advantage of this productive superiority it must be
strong enough to prevent or minimize the erection of internal and external political bar-
riers to the free flow of the factors of production; and to preserve their advantage, once
ensconced, the dominant economic forces find it helpful to encourage certain intellectual
and cultural thrusts, movements, and ideologies. The problem with hegemony, as we shall
see, is that it is passing.” (Wallerstein 2011, 38).

a. The hegemonic power’s entrepreneurial superiority in agro-industrial

production, commerce and finance. This leadership was built up cumula-
tively: agro-industrial primacy meant commercial dominance, which in
turn led to financial superiority.17
b. Each period being preceded and then guaranteed by a thirty years’ war in
the world-system, as took place in 1618–1648, 1792–1815, and 1914–1945. In
each case the hegemonic power’s productive, commercial and financial
superiority was key to military victory, but only the latter could guarantee
the conditions whereby it was able to fully exercise its superiority. The
victorious states always relied on sea or air power rather than ground
strength.
c. Global liberalism as the ideology of the hegemonic power, marshalled in
defence of the free flow of factors of production (goods, capital and la-
bour) in the world-economy.
d. Political and social stability at home as a result of the hegemonic power
promoting a political liberalism rooted in parliamentary institutions and
civil rights.18
17 “These superiorities are successive, but they overlap in time. Similarly, the loss of advan-
tage seems to be in the same order (from productive to commercial to financial), and also
largely successive. It follows that there is probably only a short moment in time when a
given core power can manifest simultaneously its productive, commercial and financial
superiority over all other core powers. This momentary summit is what we call hegemony
(Wallerstein 2011, 38–39).
18 We find two definitions of liberalism in Wallerstein: firstly as a worldview and doctrine
associated with empires and absolute monarchies; and secondly in its mature form as an
ideology and geoculture. In its first form, liberalism emerged as an approach that sought
to promote the core principles of competition and its application in the world-economy,
despite certain states helping fractions of their bourgeoisies to compete. In its second
form, as an ideology and geoculture, it represents a centrist political programme of social
and institutional change. Here it develops the principles of competition and hegemony at
the political and cultural level, conditioning them to supporting capitalist accumulation.
With the French Revolution, liberalism inflicted a violent cultural defeat on conserva-
tism, and in the mid-19th century it began to mature. It defended modern technology and
social liberation and questioned the imperial world-view, which would admit no chal-
lenge to political and institutional power. Thus the modern world system fashioned its
own geoculture.
Wallerstein argues that before establishing its own geoculture, liberalism made a
claim for itself without first developing the principle of popular sovereignty in either the
world-economy as a whole or its centres, and without really caring to articulate its cadres’
ideas with popular sentiment. In this context liberalism took the form of a doctrine.
Consent was strictly limited to the sphere of interstate relations because the cadres of
different national structures realised they could not incorporate capital and commodity
circuits by force. This was despite a participatory environment being created within the

42 Chapter 2
Wallerstein’s definition of hegemony leaves gaping holes to understanding

of its impact on the world system.19 Hegemony should not be understood as
strictly economic, i.e. as productive, commercial and financial d ominance
alone. It also has an institutional dimension and cannot be a short-term phe-
nomenon. The hegemonic state plays a fundamental role in organising capital
accumulation and makes the institutional arrangements that enable systemic
development. Global capital accumulation not only requires the generation
of surplus value through the concentration of productive assets in the core. It
is also requires the appropriation of surplus value, which only becomes pos-
sible on the scale required with the institutional order created by the globalis-
ing interventions of the hegemonic state charged with ensuring the smooth
functioning of the international division of labour and the world economy.
hegemonic country, lending it legitimacy and likened by Wallerstein to centrism even

though the principle of popular sovereignty was not asserted. In its struggle with the im-
perial world vision liberalism prioritised the modernity of technology over the modernity
of social liberation. But as it embedded itself more deeply with hegemony and its sym-
bolic interactions, so the advance of socialist theory and practice forced it to embrace
liberation too. As we shall see, during British hegemony liberalism built a geoculture in
the world system’s centre and parts of its semi-periphery. It did this in three ways: by
gradually extending the suffrage to the masses; by laying the foundations of a welfare
state, and by affirming national identity. For Wallerstein, US hegemony then deepened
and developed this geoculture throughout the system, but was less successful in stabilis-
ing the periphery and the bottom rung of the semi-periphery.
Wallerstein’s multi-layered and thought-provoking definition of liberalism harbours
ambiguities and contradictions. Thus it gives the same name to a project concerned with
the competitive basis of capital accumulation as it does to one concerned with the social
basis of said accumulation. But the two do not always coincide, because as we shall see,
whilst some hegemonies prioritise liberalism’s economic aspects, others give precedence
to its social aspects and become quite autonomous of the original liberal project. We shall
therefore use the term political liberalism to describe the project of promoting a geocul-
ture of the world-economy, be that in the hegemonic country, regions or the system as a
whole; and economic liberalism for the project of promoting capital accumulation based
on the competitive principles underpinning the law of value, even whilst partly deviating
from those principles by using state intervention either to enforce the law of competition
in certain regions of the world-economy (such as Asia and Africa under British hegemo-
ny), or to benefit certain national fractions of capital in line with the more general prin-
ciples of competition (via subsidies, state purchasing, etc.).
As a rule, we use the term liberalism without adjectives or explicit reference to ideol-
ogy to describe the doctrine of economic liberalism. Global liberalism, on the other hand,
encompasses the aforementioned ambiguities and refers to both forms of liberalism.
19 For Wallerstein’s analysis of hegemony as a concept, see The Modern World System ii (2011)
and the essay “The Three Instances of Hegemony in the History of the Capitalist World-
Economy” (2000a).

However, the way it intervenes varies considerably from one systemic cycle to
the next.
Hegemony is linked to a given state’s ability to establish the institutional
order governing the world-economy, through which the general interest is de-
fined. But while the state in question must command enough productive, com-
mercial, financial and military power to impose this institutionality, it does not
need a monopoly on all those powers in order to sustain it. Braudel refers in his
work to a hegemony’s “sign of autumn” (1984, 246). Autumn represents that
period when a hegemonic centre loses its competitive edge in production and
trade but retains financial superiority by controlling a large chunk of the
world’s monetary reserves – either through direct access or because they are
held in its national currency.
Giovanni Arrighi redefines hegemony and develops the theoretical implica-
tions thereof by analytically constructing systemic cycles. In The Long Twenti-
eth Century he argues that there are two dimensions to hegemony. First and
foremost, the hegemonic power leads the state system, convincing other states
it is the motor force behind the collective power of rulers over individuals. The
second dimension, with destabilising effects in the long term, is the hegemon-
ic state’s power to attract others to its particular path of development (Arrighi
1996, 29). Having defining hegemony more broadly in terms of the capacity to
lead the modern world system’s political and ideological superstructure, Arri-
ghi is theoretically equipped to locate the loss of combined productive, com-
mercial and financial leadership as a phase in the hegemonic process which
does not necessarily imply a loss of hegemony in the wider sense. He also theo-
rises systemic cycles, with the signs of autumn marking the passage between
their different phases.
Systemic cycles are not the same as trends seculaires20 or Braudelian logistic
cycles, which are based on oscillating price movements over 150–300 years. In-
deed, attempts to use trends seculaires to chart movements longer than Kon-
dratiev cycles seem to have met with little success. The periods of oscillation
are extremely long-lasting and their inflexion points do not always mark the
start of new periods with the characteristics they might be expected to have.21
20 Braudel’s trends seculaires were first theorised by Gaston Imbert in 1959. Imbert himself
built on the work of Jenny Griziotti-Kretschmann and León Dupriez in the 1930s and
1940s, who used the fluctuations in price series to designate a given period as one of pro-
ductive expansion and recession. See Scandella (1998, 9–12).
21 Braudel distinguishes four secular cycles, each divided into an expansive phase (A) and a
crisis phase (B) and mediated by a point of inflexion: from 1250 to 1507–1510, with an in-
flexion point in 1350; from 1507–1510 to 1733–1743, with an inflexion point in 1650; from
1733–1743 until 1896, with an inflexion point in 1817, and from 1896 for an undefined length

44 Chapter 2
Starting out from Braudel’s conceptualisation of capitalism, Arrighi defines

systemic cycles as inherently capitalist in the sense that they describe what
Braudel called the ‘top floor’ of the world-economy.22 Each systemic cycle is
divided into three stages. First there is an A-phase of material expansion, when
one particular state harnesses the superior productive, commercial, financial,
military and ideological power needed to give a new direction to the world
system. This is followed by a B-phase of financial expansion and economic de-
pression, when the hegemonic state sees its productive and commercial power
decline but responds by developing powers of financial accumulation which
become independent of the expansion of its material base.23 In this phase a
contradiction emerges between the expansion of financial and ideological
power and the decline of productive and commercial power. This gives rise to
a third, anarchic phase, which begins when the hegemon’s financial power is
longer sustainable and its ideological power dissolves, incapable of defining
the general interest in the world-economy any longer. This third phase is
of time, with an inflexion point in 1974. But this periodisation is highly questionable: it is
hard to see the entire 19th century as a time of crisis, or the first half of the 20th century
and the quarter-century after wwii as falling within the same period. Wallerstein recog-
nises these cycles and attempts to link them to the question of hegemony, using them as
the starting point for his five-stage model consisting of (1) slow growth of the hegemonic
power; (2) thirty-year war; (3) restructuring of the interstate system by the hegemonic
power; (4) gradual decline of the hegemonic power, and (5) a return to the normal state of
rivalry between powers (Wallerstein 2000a, 217).
22 Arrighi draws on Braudel’s ‘three-storey’ model of the capitalist world-economy. On the
top floor we find the political power relationships which make capitalism possible. This is
the shadowy zone of monopolies, where capitalists seek to obtain privileges by establish-
ing relationships with the State and then availing itself of its power to trade in rare com-
modities. In the middle tier we find market relations. This is the transparent terrain of
exchange and small business, where supply and demand equal each other out and the
level of profit reflects to some degree the amount of work performed. Finally there is the
ground floor, which represents material life and is described by Braudel as the realm of
self-sufficiency and use values. This level is traditionally inhabited by peasants and work-
ers who work for their own subsistence. But it is more than just that, as it encompasses
their routines, gestures, habits, secular and millennial customs, i.e. the starting point of
economic life. This realm is also seen as shadowy: not for the same reasons as the top
floor, but because of its focus on survival and conservation, its spatial and temporal di-
mensions, and its extremely slow pace. Braudel summarises this conceptual model in
Afterthoughts on material civilization and capitalism (1977), having first introduced it in
his monumental three-volume Capitalism and Civilization 15th – 18th Centuries (1982, 1983,
1984).
23 This accumulation drains the system of some of its capacity for material expansion and
leads to a period of containment and absolute or relative decline of wealth production.

marked by a thirty-year war as the two rival historical blocs compete to impose
new institutional frameworks for organising adhesion to the world system.
These three phases are described by Arrighi as hegemonic expansion, hege-
monic crisis and chaos. Unlike Wallerstein, he stresses that each systemic cycle
leads to a specific model of governance and not necessarily to global liberal-
ism. Indeed, the new dominant ideological and institutional forms that are
imposed respond not only to the interests of the hegemonic power’s ruling
classes, but to the interests of ruling classes in other countries and the different
class fractions they represent in the interstate system. The key to hegemony is
to make individual aims converge in a hierarchical global interest that benefits
the power articulating it.24
Arrighi refers to the existence of a pendular movement which determines
the institutional model adopted during each systemic cycle. In order to devel-
op, historical capitalism must avail itself of two different and expansive logics
characterised by both unity and contradiction – a capitalist logic and a territo-
rialist logic. The two logics combine because for capitalism to develop it needs
the ‘top floor,’ that is, the interstate system. World-empires were territorialist
systems that used capital accumulation in order to obtain power, which they
understood in terms of territorial expansion and population density in their
domains. But part of the wealth they created was used up in conquering and
retaining power, and eventually this cost began to outstrip the wealth accumu-
lated. This threatened the political unity of the world-empire, and land loss
and barbarian invasion followed. Capitalism, in contrast, tends to use territo-
rial expansion in order to accumulate capital. Its economic logic is borne of
careful calculations which enable it to forecast the surpluses that can be ob-
tained over and above the production costs of a given activity, and to know
therefore if it is feasible. This requires a large market that can judge the price
of the different use values and credit.25 However, the uncertainty surrounding
the cost of incorporating territories and populations imposes limits on capital-
ist calculus.
These limits can hinder the expansion of capitalism. But capitalism needs
to incorporate a growing base of use values in order to guarantee the expanded
reproduction of capital. To break through this impasse, a political institution
with a monopoly over the right to use violence must intervene in territories
and populations on behalf of capital accumulation. This institution is the in-
terstate system organised and led by the hegemonic state with the backing of
24 Arrighi developed this critique of Wallerstein in conjunction with Beverly Silver. See Ar-
righi and Silver (1999).
25 The market is at the heart of what Max Weber (1930) calls the capitalist spirit.

46 Chapter 2
other states which lend it greater power. For Arrighi, the oscillation between
activity linked to economic calculus and activity focussed on the political
intervention required to make said calculus possible is the defining feature
of the pendular swings that regulate the institutional patterns of historical
capitalism.
In Arrighi, systemic cycles are either ‘cosmopolitan-imperial’ or ‘corporate-
national.’ The former foster extensive and all-conquering accumulation
regimes in which increased productivity goes hand in hand with the incorpo-
ration of new populations and territories into the world-economy, redefining
its administrative paradigms. In contrast, corporate-national cycles establish
intensive accumulation regimes which consolidate expansion. They succeed
cosmopolitan-imperial cycles and combine increased productivity with quali-
tative changes in the institutional administration of the existing world-
economy without altering its geographical boundaries.
A swing of the pendulum does not, however, fully account for specific mod-
els of interstate systems. It does not imply a clean break with the previous
movement. The structure of each new systemic cycle retains features devel-
oped during the preceding cycle. This accumulative systemic character means
that each new hegemonic actor has a broader and more complex organisa-
tional base. It means a new kind of relationship between the State and the
capitalists – one grounded in innovative technologies and models of public/
private administration, broader territorial and demographic bases, and new
geographic locations. That is how the Genoese-Spanish26 and British systemic
cycles (both cosmopolitan-imperial) developed, as did the Dutch and North
American cycles (both corporate-national).
2.3 The Genoese-Spanish Cycle

The Genoese-Spanish systemic cycle articulated Spanish imperial power led
by the Habsburg dynasty with Genoese capital linked to finance and overseas
26 Neither Arrighi nor Wallerstein consider Spain to have been a hegemonic power. Arrighi
prefers to talk of Genoese hegemony, whilst for Wallerstein the Spanish Empire marked
the transition towards the modern world system, which only fully developed upon its
downfall. But although its imperial self-projection and the territorialism of its ruling elites
certainly weigh against it, Spain did play a strategic role in articulating a world-economy
which it could never dominate, but which equally could never have been built on Genoa’s
initiative alone. Between 1450 and 1650 Spain’s territorial power was vital to the expansion
of historical capitalism, and so we prefer to talk of a Genoese-Spanish hegemony, thus
denoting what Wallerstein (1979) himself calls a “marriage of interests” between the em-
pire and the city-state. In his most recent work, Arrighi largely rectifies his position and
refers to the first systemic cycle as Genoese-Iberian (2007, 236–237).

trade. As we saw, this articulation was fundamental to the birth of the capital-
ist world-economy. This is because it brought together, on the one hand,
territorialists seeking to resolve the European feudal crisis by using imperial
expansion to find new sources of wealth, raw materials, food and labour pow-
er; and, on the other, Genoese capitalists seeking new investment outlets for
their capital. The Genoese commercial bourgeoisie had been badly hit by the
Italian city-states’ crisis of accumulation and were vulnerable on two fronts.
Firstly, they were supported by a weak feudal-military aristocracy. Hence when
Mediterranean trading profits declined they were pushed out of the disputed
Eastern Mediterranean and Black Sea trade routes by Venice (during the Hun-
dred Years’ War). Secondly, they were weaker than their own feudal aristocracy,
which prevented them from refeudalising and investing their profits in land,
castles and armies.
It was in such circumstances that Genoese capitals looked to the Iberian
Peninsula for the kind of protection their own aristocracy had withheld when
the Genoese trade empire entered into crisis. Its advantageous location prom-
ised greater control of African gold and an alternative Atlantic route to the
Orient. But it was Spanish imperial interest in an expansion of incalculable
expense that really made this convergence of interests work. The Genoese
were at first only interested in trade, but later agreed to finance the colonisa-
tion of new peoples and territories (Arrighi 1996, 125). Thus the foundations of
the Genoese-Spanish cycle were cemented in a way which involved each party
taking on a specialised role.
Spain assumed the costs of colonial conquest and the protection of territo-
ries and trade routes. It recouped this expense by collecting tribute in the areas
it occupied – including up to 20% of the silver produced in its American
colonies – and restricting colony-metropolis trade relations by imposing the
metropole’s exclusive monopoly on colonial trade. But the Spanish Empire did
not pursue mercantilist policies. Instead it retained a firmly pan-European
outlook. Geographically speaking, it was spread over non-contiguous areas be-
reft of any national identity and enjoying only the most precarious administra-
tive unity. Politically and ideologically it was united by Catholicism, in whose
name it expelled non-Catholic traders and bankers and relied instead on for-
eigners who benefitted from the metropole’s monopoly over colonial trade. It
neither built up a navy of any significant size, nor enclosed common land, nor
protected Spanish manufacturing, nor rationalised its system of tribute to al-
low commodities to circulate in its hinterlands. Genoa, for its part, bankrolled
the Spanish treasury and put its navigational expertise at the service of over-
seas trade. But above all it would end up specialising in finance (Wallerstein
1998a, 233–316; Arrighi 1996, 111–130; Kennedy 1987, 31–72).

48 Chapter 2
Thus an imperialist and expansionist cycle was founded on anti-liberal prin-

ciples, such as the metropole’s monopoly over colonial trade, that were never-
theless subordinated to antimercantilism – meaning foreigners who belonged
to or supported the Empire were free to engage in commercial and financial
activity.27 The fall of the Spanish Empire was precipitated by its inability to bal-
ance the costs of its expansion and maintenance against its income. This led to
soaring deficits, financial crises (1557, 1575, 1596, 1607, 1627 and 1647) and do-
mestic revolts against tribute and the Empire’s ideological foundations. This
situation bankrupted Genoese and southern German investors and had a neg-
ative impact in locations they were associated with, such as Portugal, Antwerp
and Krakow.
2.4 The Dutch Cycle

The Genoese-Spanish systemic cycle was followed by a corporate-national
Dutch cycle. The United Netherlands had played the leading role in bringing
down the Spanish Empire’s downfall, and it now sought to build its hegemony
on the subordination of territorialism to capitalist calculus. This approach was
expressed by (a) its containment of European expansionism through the Peace
of Westphalia; (b) Hugo Grotius’ liberal principle of Mare Liberum, and
(c) changing the way Europe ruled the East. Westphalia allowed the Dutch to
avoid the kind of political-military expenditure that had contributed to the
demise of the Spanish Empire. The notion of Mare Liberum allowed them to
appeal to the principle of liberal competition in exploiting their maritime
trade advantages – namely superior naval construction technology and naviga-
tion techniques and control over strategic supplies such as North Sea fisheries
and Baltic timber and cereals. And unlike the Portuguese, the United Nether-
lands based its power in Asia not on territorial conquest and tribute but on the
control of strategic ports. This gave it a monopoly over the European trade in
spices and luxury goods.
27 “The trade to the colonies was a monopoly throughout most of the sixteenth and seven-
teenth centuries. The monopolist was not the Crown (as in Portugal) but the consulado –
the merchant guild – of Seville, with its subsidiary organization at Cádiz. By an elaborate
series of fictions, merchant houses all over Spain became members by proxy of the Se-
ville guild, consigning their cargoes in the name of resident Seville merchants. Even for-
eign commercial firms, German, English and Flemish – adopted this device, (…)” (Parry
1966, 66).
Similarly, Andre Gunder Frank notes that “of all the merchandise arriving in Cadiz at
the end of the seventeenth century 25% was consigned to French merchants, 22 per cent
to Genovese, 20 per cent to Dutch, 10 per cent to Flemish, 8 per cent to German, and only
5 per cent to Spanish receivers (Regla 1961: 346). Simultaneously, Spanish merchant
shipping was replaced by that of her European rivals” (2011, 72).

The containment of territorialism served not only the United Netherlands’

interests but also those of other European states seeking to affirm their own
nationalisms by absolutist and mercantilist means. This ended up stymying
the ambitions of Dutch liberalism. In the name of liberalism, the United Neth-
erlands clashed with English mercantilism in a series of European wars (1652–
1654, 1665–1667 and 1672–1674). Britain’s successive victories in these wars lay
the foundations of its own trade empire – one which would challenge the
Dutch ideal of Mare Liberum. Furthermore, the territorial integrity of the Unit-
ed Netherlands was threatened by a renewed European expansionism, this
time spearheaded by France. This drove it to become Britain’s militarily weaker
ally – a partnership sealed by the defeats they together inflicted on French ex-
pansionism. Conflict with France not only helped Britain subdue Holland mili-
tarily, forcing it to organise its land forces rather than develop its navy (Britain’s
new domain), but also helped it secure a larger share of non-European world
trade by enhancing its access to the Spanish and Portuguese colonial empires
through the treaties of Methuen (1703) and Utrecht (1713).
The United Netherlands’ loss of military leadership did not plunge its hege-
mony into crisis, but did limit its further expansion. Its hegemonic crisis arrived
when the diffusion of Dutch naval construction technology and navigation
techniques enabled mercantilism to encroach on the Baltic in the 1720s and
1730s, and in doing so threaten the Dutch monopoly on the Baltic grain trade
(the chief source of superprofits at that stage of the modern world system’s
development). The financialisation of Dutch hegemony began in 1740 – the
first sign of an autumn that would last until the 1870s.
If Genoese-Spanish hegemony was both driven and limited by imperial
territorialism, then under Dutch hegemony it was capitalist calculus which
performed that dual function (Arrighi 1996, 1999). The United Netherlands’ ter-
ritorialism was limited to controlling certain strategic supplies, and it focussed
its efforts on developing naval technology that would give it the competitive
edge in securing and shipping those commodities. During the wars of Spanish
expansionism, when food production was limited by the rising number of sol-
diers, the Dutch monopolised the trade in grain (which rose in price due to
food shortages), draining the Americas of its silver. But the restrictions they
had placed on their territorialism meant they were left defenceless when other
European states and regions turned to mercantilism. As they became ever
more embroiled in military conflict in defence of Mare Liberum or their own
territorial integrity, their limited demographic resources faced mounting pres-
sure, and they were forced to choose between allocating manpower to mari-
time trade or to war. The crisis that engulfed the world-economy with the
spread of mercantilism was only resolved with the emergence of a new trade

50 Chapter 2
empire which sent the pendulum swinging back towards territorialism, but
this time with economic calculus exercising greater control.
The United Netherlands developed aspects of the previous systemic cycle
to become the productive, commercial and financial centre of the world-
economy. The boundaries of this world-economy were largely Iberian-drawn,
but whereas in the preceding cycle accumulation and coercive force had ex-
isted separately, the Dutch managed to articulate them through a single organ-
isation – the nation-state. By prioritising calculus over conquest they made
much higher profits out of managing the world-economy. Despite advocating
Mare Liberum ideals, they were very pragmatic when it came to putting their
liberalism into practice, often preferring Mare Clausum. In Asia, the Dutch East
Indies Company’s (voc) government-granted monopoly over trade and the ex-
ercise of military power in the region’s ports and spice-producing areas was
crucial to securing superprofits from the European trade route. The sheer
abundance of spices meant the huge profits to be had could only be main-
tained by prohibiting all competition. The Dutch also sought a monopoly over
the coastal African slave trade by setting up the voc’s counterpart – the Dutch
West Indies Company (wic). But in this they fared poorly. Such a monopoly
could not be won via military control of the African coast, with the incalcula-
ble costs that implied. It could only be achieved in conjunction with colonial
policies, but Dutch antiterritorialism prevented them from developing as a co-
lonial power, whilst their weakness compared to the British limited their abil-
ity to unite with the Iberian colonial empire (Arrighi and Silver 1999, 102–112).
Looking at this systemic cycle as a whole, we find the liberal project lacked
ambition and was overtaken by mercantilism. The United Netherlands lacked
the coercive means to impose itself on emerging nationalisms. However, the
cycle only entered into crisis when mercantilism reached the Baltic Sea and
central and eastern Europe. There, and in Sweden, Denmark, Prussia and Rus-
sia especially, mercantilism sent the Dutch trading empire into decline as the
British one expanded.
2.5 The British Cycle

The British systemic cycle shifted the pendulum back towards territorialism in
order to tackle the problems caused by the spread of mercantilism in the Euro-
pean economy. Britain’s greater military superiority compared to that achieved
in the Genoese-Spanish cycle meant it could bind territorialism more tightly to
economic calculus and the pursuit of profit. In doing so it established a new
international division of labour that would underpin its hegemonic bases. Brit-
ain forged a commercial empire that allowed it to specialise in production
based on small and medium-sized industrial enterprises supplied with raw

materials from the world economy. The industrial driving forces behind British
hegemony and two different Kondratiev cycles were textiles (mainly cotton);
and iron, which facilitated railway-building and the transport revolution. They
both relied heavily on indigo and raw silk from India, cotton from Egypt and
the southern United States, Australian wool, grain from Russia and the Bal-
kans, strategic minerals and foodstuffs from Latin America and industrial lu-
bricants produced in West Africa (Wallerstein 1998a, 179–265; Hobsbawm 1983,
124–142; Furtado 1969, 42–85; Cardoso and Brignoli, 1983, 290–300).
The British trade empire not only cheapened the cost of labour power and
constant capital, but also created a huge consumer market for Britain’s manu-
factured products. In his analysis of how Britain overtook France to become
the locus of industrial development between 1780 and 1840, Wallerstein locates
the root cause for its success in the advantages gained from what Arrighi later
described as “free trade imperialism.” These can be summarised as:
a. The reaffirmation of this type of imperialism through naval power, which
redirected expansion based on conquering markets away from the
restrictions imposed by Europe’s different mercantilisms. European mer-
cantilism could not be destroyed by a land force because the demograph-
ic, political and military strength of the monarchical states had made
European imperial unity an increasingly unrealisable goal. But Europe’s
military superiority over other regions such as Asia meant it could use
coercion to incorporate them into the capitalist world-economy.28 This
territorialism targeting the East was modelled on and preceded by spe-
cifically British strategies and methods of penetration in Asia.29
b. Building territorial power, starting with the conquest of Bengal at the
Battle of Plassey in 1757, allowed Britain to pay off its debts to the United
Netherlands. Since their financialisation in 1740, Dutch capitals had
increasingly underwritten the British economy whilst at the same time
undermining it by repatriating resources. As Britain’s economy became
solvent, its demand for circulating Dutch capital diminished. This proved
28 The regional fragmentation of the Mughal Empire in Asia had much to do with this be-
cause it enabled the British to exploit internal rivalries and set up a native colonial army
to defend and expand its Asian empire. See Maddison (2001).
29 Arrighi and Silver (1999, 109–111) show how Dutch hegemony in Asia excluded Britain
from the highly profitable spice trade through its control of ports and spice-producing
islands. Britain therefore had to turn to exporting piece goods – a form of insertion which
was only profitable if the lower added value of commercial production was offset by a
higher product volume. This kind of specialisation required direct control over the pro-
ductive process in order to guarantee production volumes and the supplies needed. This
in turn fed the trend towards territorialisation.

52 Chapter 2
to be a fatal blow to Dutch financial power, which then unsuccessfully

tried turning to new markets offered by high-risk creditors such as France.
Territorial power also guaranteed the British economy a foreign exchange
surplus. A positive balance of payments was achieved by simply transfer-
ring tribute from the colonies or hiring out naval services from the impe-
rial centre. This strengthened London’s position as a financial centre that
was replacing Amsterdam. And building a commercial empire in Asia
meant Britain could let go of its American colonies, with whom it was
already economically integrated anyway, and use the resources it had
previously invested in political rule there to conquer new regions.
c. Cheaper manufacturing supplies and external markets incentivised tech-
nological innovation and dramatically strengthened the world-economy
during the British cycle. Whereas the United Netherlands had inter-
nalised protection costs, combining accumulation and force in one or-
ganisation, Britain in its cycle internalised production costs as its main
competitive advantage.30
Internalising the costs of production allowed Britain to defend economic liber-
alism – expressed by the Ricardian theory of comparative advantage – as a
universal ideology. Whereas in the Genoese-Spanish and Dutch cycles superior
navigation techniques had guaranteed a commercial monopoly over certain
commodities (such as the silver, gold and wheat that made the fortunes of the
capitalist elites), Britain’s role as the world’s trading hub during its cycle de-
pended directly on its productive capacity, which enabled it to buy low value-
added commodities and sell high value-added commodities.
Economic liberalism developed through the use of territorial force, which
was initially wielded by the East India Company. However the company came
under increasing regulatory control from the British government and was dis-
solved in 1857.31 From then on the use of force was the state’s prerogative. The
spread of political liberalism across Europe32 and the Americas during the
30 “By ‘internalization of production costs’ we shall understand the process through which
production activities were brought within the organizational domain of capitalist enter-
prises and subjected to the economizing tendencies typical of these enterprises. To be
sure, capitalist enterprises specializing in production activities had existed long before
the British cycle of accumulation took off. But this kind of enterprise had played either no
role or only a secondary and subordinate role in the formation of the Genoese and Dutch
regimes of accumulation” (Arrighi 1996, 181).
31 In 1813 the British government ended the East India Company’s monopoly and began pro-
moting competition led by English enterprises, affecting the international division of
labour.
32 In Europe, liberalism developed most in the latter half of the 19th century, when the first
expansive phase of the Kondratiev cycle began under British hegemony: “In 1820–70,

British cycle was to the detriment of the right to self-determination of vast

swathes of humanity. The neocolonial carve-up of Asia and Africa by Europe’s
leading powers continued until the end of the 19th century33 with devastating
consequences for their economic development – particularly in the case of
Asia as the periphery’s then most developed pole.
As long as Asia remained independent of the European world-economy it
was able to run a balance of payments surplus with the West by exporting
luxury goods such as cotton and silk fabrics produced in semiartisanal condi-
tions.34 But the colonial imposition of free trade obliterated this manufactur-
ing base.35 Asia’s insertion into the world economy was therefore an extremely
destructive process which turned it into an exporter region supplying raw
these mercantilist barriers were largely eliminated. The UK removed all tariff barriers and
trade restrictions between 1846 and 1860. Free trade policy was enforced in British colo-
nies, and in quasi-colonies such as China, Thailand and Turkey. In Germany, the customs
union (Zollverein) of 1834 ended barriers between the German states and the external
Zollverein tariff was lowered after 1850. In 1860 the Cobden-Chevalier Treaty removed
French quantitative restrictions and reduced tariff barriers to a modest level. This was
followed by French commercial treaties with Belgium, the Zollverein, Italy, Switzerland,
Spain and other countries. These treaties had most-favoured-nation clauses which meant
that bilateral liberalisation applied equally to all countries.” (Maddison 1995, 61). See also
Kemp (1994, 39).
33 As Paul Kennedy notes, “In the year 1800, Europeans occupied or controlled 35 percent of
the land surface of the world; by 1878 this figure had risen to 67 percent, and by 1914 to
over 84 percent” (Kennedy 1987, 150).
On the other hand, in 1820 China, India and Africa together represented 63.8% of the
world population, falling to 55.2% in 1870 and 48.4% in 1913 (Maddison 2001, 243).
34 Andre Gunder Frank (1998) argues that Asia remained the world economy’s core region
until the mid-18th century, when its balance of payments with Europe went into deficit.
He attributes Asia’s loss of status to it entering the B-phase of one of the 500-odd year
cycles he postulates. The exhaustion of this B-phase would focus the world economy back
on the region. His theory is interesting and provocative, based as it is on a comprehensive
review of social thought which seeks to cut away its Eurocentric roots. However, it does
not appear to be supported by the indicators cited in Maddison’s recent long-term statisti-
cal analysis of the world economy. According to these figures, Western Europe exceeded
Asia in per capita income from 1300 onwards, reflecting the development of its productive
forces under feudalism and the beginnings of its transition to capitalism. Western Euro-
pean leadership was consolidated in 1500, when its per capita income reached US$774
compared to Asia’s US$575 (Maddison 2001, 264).
35 In 1750, the regions later included in the so-called Third World accounted for 73% of glob-
al manufacturing production, of which China and India alone represented 57.2%. By 1830
these figures remained high at 60.5% for the Third World overall and 47.8% for China and
India. But they then declined sharply, and by 1900 the former represented 11% and the
latter just 7.8% (Kennedy 1987, 149).
Arrighi and Silver note that of 200–250,000 Indian handloom weavers in 1830 there
were only 40,000 left by 1850. See Arrighi and Silver (1999, 118).

54 Chapter 2
aterials to British industry. In contrast, for peripheral areas lacking a strong

m
civilisational basis for organisational and economic resistance to British and
European industrial expansion, international insertion was a more positive
process and some material progress was achieved.36
The crisis of British hegemony began in the 1870s. It reflected a dual failure
on Britain’s part: to limit the spread of the technological knowhow associated
with industrial development to the world-economy’s centre and parts of its
semi-periphery; and to prevent the rise of the new, more efficient organisa-
tional forms that would bring forth the next stages of the Industrial Revolu-
tion.37 The American Civil War (1861–1865), the Meiji Revolution in Japan
(1868) and German Unification (1871) all created state structures designed to
resist British-led semi-peripheralisation and deploy protectionism, import
substitution and educational/scientific development in support of their own
catching-up processes. It was these structures which drove the reorganisation
36 China and India, bastions of the British Empire in Asia, experienced very low per capita
growth rates between 1820 and 1950. This is especially evident when compared to other
parts of Asia, the periphery or the world economy overall. In the 1820–1870 period China
and India expanded by 0.25% and 0% respectively. Then in 1870–1913 they expanded by
just 0.1% and 0.54%, and in 1913–1950 they declined again, to -0.62% and -0.22%. In com-
parison, Japan, which took a path of its own after the Meiji Revolution, enjoyed per capita
growth of 1.48% between 1870 and 1913 compared to 0.19% in 1820–1870. Between 1913 and
1950 this fell to 0.89%, reflecting the country’s defeat in wwii. In the periphery, Latin
America and Africa performed much better than China and India. They enjoyed per cap-
ita growth of 0.10% and 0.12% respectively between 1820 and 1870. Between 1870 and 1913
their growth accelerated, reaching 1.81% and 0.64%. Then in 1913–1950 they expanded by
1.43% and 1.02%. The world economy overall also enjoyed much higher growth than Chi-
na and India, reaching 0.53% (1820–1870); 1.3% (1820–1870), and 0.91% (1913–1950). (Mad-
dison 2001, 262).
37 The relationship between technological paradigms and new organisational forms is ex-
plored in some of the neo-Schumpeterian literature, particularly in the work of Christo-
pher Freeman and Carlota Perez. Freeman and Perez use Schumpeter as their starting
point to illustrate the dynamic of long waves. Growth periods occur when radical organ-
isational innovations are accompanied by technological innovations in the public and
private spheres. During these periods secondary and tertiary innovations help to develop
the technological paradigm. Periods of stagnation and crisis begin when a given techno-
logical trajectory is exhausted and a new paradigm emerges, but without the organisa-
tional changes it needs to develop. This leads to lower profitability and profit. New
organisational relationships affect a society’s use values and imply new workforce train-
ing methods, intra-firm/inter-firm relationships, and public policies. For the authors,
such periods represent an opportunity to reorder hierarchical relationships in the inter-
national economy because leading countries are stuck with a set of use values that relate
to the previous paradigm. We return later to Freeman and Perez, simply noting here that
their approach is limited in scope because it refers only to 50–60-year periods – long
enough for a Kondratiev cycle but not for potentially longer systemic cycles, which may
incorporate more than one Kondratiev.

of enterprises and capital accumulation (Kemp 1994; Teixeira 1999; Keck 1993;
Odagiri and Goto 1993).
From 1789 to 1871 Britain led the development of two technological para-
digms: the textile and iron industries. As seen, they were mainly applied to
cotton fabric production and railway construction, both of which were per-
formed by small and medium-sized industrial enterprises using semiartisanal
labour and capital drawn from their own profits. Department i, the producer of
motive machines and machine-made machines, had not become sufficiently
autonomous of Department ii, the producer of consumer goods, and innova-
tion still depended largely on empirical, non-systematised knowledge intro-
duced by workers by artisanal means (Mandel 1978, 184).38
But Thomas and Gilchrist’s success in producing basic steel with non-
phosphorous materials in 1878 and 1879 provided the key input of a new tech-
nological paradigm that made it possible to surpass the limits of empirical and
non-systematised knowledge. Innovations in steel production and electricity
were combined to convert mechanical power into continually transmittable
electric currents. Steel revolutionised the consumption of materials and en-
abled heavy engineering to develop beyond the limitations of iron.39 It was
mainly used in transport, leading to a second wave of railways expansion, and
enhanced sea travel through building high capacity cargo ships. The steel revo-
lution culminated in the production of high-precision machine-tools in terms
of cutting and strength that would be at the heart of the next technological
paradigm, which took off in the 1910s and was centred on cars, assembly lines
and interchangeable parts (Freeman and Perez 1988; Hobsbawm 1987; Kondra-
tiev 1984; Maddison 1995; Martins 1996).
These technological paradigms fostered a generalised growth in scales of
production and signalled the need to articulate the productive and financial
sectors. Innovations went from being the domain of manual workers and em-
pirical knowledge to that of scientific management and R&D laboratories that
38 This was one of the reasons why France failed to achieve technological and industrial
supremacy, despite being at the forefront of scientific production in the first half of the
19th century through bodies such as the Collège de France, the Ecole Polytechnique and
the Muséum d´Histoire Naturelle. On French scientific leadership in this period see
Chesnais (1993).
39 “Steel is a superior variety of iron. It possesses all the advantages attributed […] to metal
and especially ferrous metal, in higher degree. Chemically, the two are distinguished by
carbon content: pig iron, 2.5–4 per cent; steel, 0.1 per cent to about 2 per cent; wrought
iron, less than 0.1 per cent. […] Pig iron is hard but is also brittle […] wrought iron is ex-
tremely susceptible to wear and tear, is easily altered by shock, and offers low resistance
to pull or bending. Where pig iron will crack or snap, wrought iron will yield. Steel com-
bines the advantages of both. It is hard, elastic, and plastic.” (Landes 2008, 251).

56 Chapter 2
could systematically analyse labour processes and products. In the field of

labour relations, semiartisanal and artisanal labour was replaced by simple,
intensive work. The process of creating large industry, foreseen by Marx in
Capital Volume i and which turns workers into mere appendages of machin-
ery, took place on an unprecedented scale.
Britain found itself unprepared for this new organisational form. Its family-
run enterprises were divorced from the industrial and financial sectors, thus
limiting the development of the scales needed to strengthen the new techno-
logical base. Education had been put in private hands and standards were low.
Primary school education only became compulsory in 1880, compared to Prus-
sia where 97.5% of school-age children were enrolled by 1860. The biggest gap
was in university education, which began providing external services to agri-
culture and industry – notably engineering – but still failed to attract any inter-
est from a state in thrall to economic liberalism. In this sense the US, Germany
and France had all ploughed far ahead of Britain. Adding to these difficulties,
Britain faced the resistance of skilled workers to Taylorism and Fordism, which
brought the organisational changes required by the new technological para-
digm into enterprises. In sum, there existed not even the most basic conditions
needed to develop a stratified workforce that could perform scientific research
and managing companies professionally or adapt to the limited and specific
competencies of the labour process (Landes 1994, 335–367; Mowery and Rosen-
berg 1991, 29–75; Kemp 1994).
Britain’s best-performing competitor was the United States. The US devel-
oped organisational structures that gave rise to a systemic cycle based on
transaction costs. This meant vertically integrated businesses that performed
external transactions in-house, resulting in larger scale operations and lower
production costs (Arrighi 1996). The end of the American Civil War brought
national unification and the abolition of slavery. These changes, along with the
country’s continental dimensions – product of an insularity that let it expand
territorially without clashing with the great powers – meant a vast internal
market without equal in Europe could be created. In addition, the US assumed
technological leadership. It did this in two ways: by establishing a decentral-
ised, state-led network of public universities geared towards production
needs;40 and by raising an industrial reserve army to break the resistance to
Fordism by unionised artisans, which involved facilitating immigration from
abroad.41
40 David C. Mowery and Nathan Rosenberg provide an interesting analysis of the US system
of innovation prior to 1945. See Mowery and Rosenberg (1991).
41 On this topic see Coriat (1979).

Germany emerged as the other great competitor to succeed British hege-

mony. Lacking a mass market or territorial space in which to expand, it fo-
cussed instead on horizontal integration42 and state consumption.43 It also
built up a strong educational system whose universities were crucial to creat-
ing major electrical, chemical, pharmaceutical, machine-building, naval and
steel industries.44
Britain reacted to its crisis of hegemony in two ways. In terms of production,
it encouraged its semiartisanal sector to specialise in high added-value luxury
consumer goods. But that solution alone was insufficient – it had to be articu-
lated with and conditioned to financialisation, which was driven by global
competition to attract mobile capital. As a financial centre and owner of the
main currency used in international transactions, Britain was in a stronger po-
sition than anyone to respond to the need for financialisation. There were two
root causes behind the dispute over mobile capital: the post-1880 great power
arms race, which helped Britain briefly recover from the crisis of the 1870s, and
new organisational forms linked to the emerging paradigms, which offered
new routes to economic growth. But the rise of new economic competitors
gradually undermined Britain’s financial power by deepening its trade deficit.
Britain’s balance of payment surplus became ever more dependent on its earn-
ings from foreign and colonial investments. This made it even more vulnerable,
because it relied even more heavily on an increasingly costly territorialism.45
British capital mainly directed its foreign investments towards the United
States. In contrast, it failed to build up much of a relationship with the German
economy, which funded German participation in the arms race domestically
through the state and investment banks. The reason for this difference was
42 Horizontal integration brought together the productive and financial sectors through the
creation of investment banks and through banks merging with one another or becoming
shareholders in industry. See Kemp (1994, 101–139).
43 In 1913 German public expenditure stood at 17.7%, rising in 1938 to 42.4%. This was some-
what higher than the overall averages of 11.7% and 27.7% in the same years respective-
ly for the UK, the US, France, the Netherlands, Japan and Germany itself (Maddison
1995, 65).
44 See “The National System of Technical Innovation in Germany” by Otto Kecks in Nelson
(1993) and José Carlos de Souza Braga (1999).
45 According to Barry Eichengreen (2000), in 1913 Britain controlled just 3.4% of global gold
reserves owned by central banks and governments. In comparison the US controlled
26.6%; France 14%, and Germany 5.7%.
Maddison (2001: 358) notes that between 1870 and 1913 British foreign trade lost the
advantages it had enjoyed over its competitors. The volume of German exports rose from
half those of British exports to equal them, and US exports climbed from around 20% to
49% of the British total in the same period.

58 Chapter 2
twofold: it was more profitable for British capital to invest in the US; and Eu-
rope was gripped by geopolitical disputes in which Germany was emerging as
a power with serious expansionist and territorialist ambitions.
The First World War (1914–1918) gave way to a period of systemic chaos as
British hegemony finally collapsed without any other power strong enough to
take its place. The war exposed the rising protection costs that went with ter-
ritorialism and Britain’s inability to keep paying them. This in turn played a key
role in ending British hegemony as the country was forced to liquidate many of
its foreign assets in order to fund the war effort. As a consequence, the United
States went from debtor to creditor in its relationship with the old hegemonic
power. It bought up British foreign assets in the US at bargain prices and be-
came Britain’s chief supplier of military equipment, goods and credit. The re-
turn of the gold standard and sterling’s strategic role in its administration in
the 1920s turned out to be heavily reliant on the US financing the British bal-
ance of payments. Britain became weighed down by trade deficits that far out-
stripped prewar levels, and its earnings from foreign and colonial investments
stagnated. This made it less competitive, leading to a global economic reces-
sion and a rising tide of protectionism and nationalism. When the US econo-
my’s newly-found dynamism and the speculative manoeuvres that provoked
the 1930s crisis led to American investments being channelled into the US
economy itself, the remnants of the gold standard and sterling were finally de-
stroyed for good (Arrighi 1996; Arrighi and Silver 1999; Landes 1994; Hobsbawm
1983; Mitchell 2007a, 2007b).
The systemic chaos ended when the US joined forces with the powers that
had benefitted the most from British institutionalism such as Britain itself and
France to inflict military defeat on the emerging industrial powers of Germany,
Italy and Japan, which had tried pursuing their own brand of imperialism after
falling behind in the race for colonies. But victory was only guaranteed by the
decisive action of the Soviet Union, proving that a power that was not only
anti-imperialist but also socialist was needed to establish the new systemic
cycle.
2.6 The US Systemic Cycle

After World War Two, the United States emerged as the power best placed to
shore up and develop the interstate system against the imperial ambitions
harboured by Germany and the other defeated powers. Like France during
the transition to British hegemony, Germany had been in the weakest posi-
tion out of the big powers competing for control of the world-economy in the
interwar period, and so had turned to force to achieve its goal. What was new
about its imperial project was that it set itself up in opposition not only to the

estphalian principles of interstate competition, but also to the proletariat,

W
which together with other popular sectors had taken the stage as a new subject
that defended solidarity, equality and freedom in a substantive sense. It did
this through internationalism: the only level of organisation capable of de-
fending national working class because it sought to generalise them. Interna-
tionalism produced actors opposed to the national chauvinist demands of
their own states, who stood outside interstate competition and limited it. In
response, certain national bourgeoisies who were unable to realise their hege-
monic ambitions transformed imperial projects into fascist projects. They
were no longer primarily combatting an external enemy, other nation-states,
but were engaged in a total struggle to clear any internal or external obstacles
standing in the way of said bourgeoisies and their state apparatuses. For fas-
cism, these obstacles combined were represented by Bolshevism, itself seen as
essentially Jewish.
The growing strength of the proletariat and popular classes worldwide
meant that in order to institutionalise the systemic cycle the US had to inter-
nationalise and deepen political liberalism, hitherto limited to core countries
which had extended the suffrage to parts of the working class and laid the
foundations of the welfare state. Political liberalism was extended across the
world-economy because of the interconnectedness between interstate con-
flicts and intrastate struggles during the transition to US hegemony, whereas
during the British transition the former had preceded the latter.
This interconnection was made apparent in the way wars were driven by
both interstate political conflict and the need to tackle social discontent at
home. Nationalism and the larger role now played by public opinion fostered
an atmosphere of mounting social pressure on domestic policy. But the world-
economic success of states and their bourgeoisies, whether in economic com-
petition or in war, served to bypass class struggle and created an entity – the
nation – that stood above domestic division and could defuse social pressure
through social reform (Silver and Slater 1999, 183–194).46 By trumping interna-
tionalism with nationalism, core and semi-periphery bourgeoisies succeeded
46 Beverly Silver uses quantitative indicators to show the rise in labour unrest in the years
preceding major conflicts during the systemic chaos of the US transition to hegemony.
She bases her indicators on reports in newspapers in the hegemonic centres (The Times
and New York Times) of working-class resistance to the commodification of labour power,
longer working hours, worsening conditions including more intensive working; low pay
or wage cuts; mass unemployment; forced proletarianisation, and the destruction of live-
lihoods. As forms of resistance, Silver takes into account not just strike figures but also
data covering acts of sabotage, agitation, go-slows and confrontations (Silver, Arrighi and
Dubofsky, eds. 1995, 7–34).

60 Chapter 2
in making the transition to a new systemic cycle. Nonetheless, in the first half
of the 20+ century this was only achieved through bloody conflicts between
different nationalisms. Countries presiding over defeated hegemonic projects
found themselves in the midst of a class war unleashed by proletarian organ-
isations in response to the spread of the industrial revolution. The greatest so-
cial unrest was in Russia, with the Russian Revolution; in Germany, with the
fall of the Empire and the formation of the Republic amidst intense socialist
agitation; and in Italy, which as part of the Triple Alliance had started the First
World War. But the anti-systemic effects of wwi were felt throughout the
whole of Europe. The consolidation of socialism on the one hand and fascism
on the other represented different and antagonistic responses to the contra-
dictions of imperialist nationalism. Socialist revolution prioritised class strug-
gle over the national state and rejected imperialist expansionism. Fascism,
meanwhile, gave a new form to nationalism: one that abandoned any belief in
social reform in favour of using terror to establish a state dictatorship domi-
nated by big capital, and thereupon use national identity and expansionism to
avert internal and external threats to the ‘destruction of the nation’ in the
shape of class warfare and competing state interests respectively (Hobsbawm
1994; Wallerstein 1995a; Santos 1969, 1977d,; 1978d, 1979a, 1991, 2000a; Guérin
1973; Kershaw 1991).
The US consolidated its hegemony by overcoming these challenges. Having
defeated fascism (its chief antagonist in the interstate struggle), it still had to
find ways to rebuild a consensus in order to meet the challenges the world-
economy had posed to the British institutional order. Meeting these challenges
would involve taking a series of measures, including
a. Promoting a new wave of social reforms in the central countries to ad-
dress demands that had been building up since the 1910s and assuage the
masses’ frustration with the decline in living standards caused by years of
wartime destruction.
b. Containing the spread of socialism, which had benefitted from the Soviet
Union’s decisive role in defeating fascism, the collaborationism of liberal
parties during the fascist occupation of Western Europe, and the world-
economic crisis.
c. Overseeing the expansion of the interstate system and the right of Afri-
can and Asian peoples to self-determination.
Between 1908 and 1913 the labour unrest index rose from 47 to 104 in the world-
economy overall. In the centre it shot up from 59 to 93, hitting a high of 159 in 1912,
whilst in the semi-periphery it jumped from 35 to 243, and in the periphery it fell from 41
to 30 (Silver, Arrighi and Dubofsky, eds. 1995, 155–192).

d. Responding to calls for industrial development and modernisation in the

peripheral and semi-peripheral countries, where a rising tide of national-
ism was already pushing to make industrialisation and protectionism
public policy. In Latin America, and Brazil and Mexico especially, this
had already led to nationalisations, the suspension of foreign debt pay-
ments and state-managed import-substitution programmes.
North American hegemony was built on the twin pillars of the Bretton Woods
Agreement and the Yalta Conference. At Yalta, the United States and the Soviet
Union agreed to peacefully coexist and marked out their respective areas of
territorial influence. But it took the onset of the Cold War in the 1950s for US
hegemony to really impose itself on the world-economy. The Cold War meant
the US could call for the hemispheric integration of the free Western world
against its socialist counterpart without abandoning its national sovereign-
ty, and so overcome the limits imposed by nationalism. It thus managed to
bypass internal restrictions to the costs of its hegemony and put the world
economy on a path of sustained recovery (Arrighi 1996; Wallerstein 1995a,
1999b, 2002).
With the end of World War ii, the relationships that had allowed for a more
balanced expansion of the world economy broke down for good. During the
inter-war period a triangular model of financing had predominated: the US ran
trade surpluses with Europe which it spent on foodstuffs and raw materials
from Europe’s colonies, whilst Europe obtained the dollars it needed to finance
its US purchases by exporting manufactured goods to its colonies and repatri-
ating the profits from its colonial investments and revenues. But the income
Europe received in this way dried up – on the one hand because it had to liqui-
date its assets in order to fund the war effort, and also due to the advance of
decolonisation processes. The postwar period therefore presented the US with
a paradox: the technological, human and financial resources it had amassed
were enough to affirm its international leadership, but not enough for it to re-
vive the world economy and become hegemonic. To do that it would have to
find ways to decentralise the huge resources now at its disposal and boost the
flow of goods and investment in the world-economy (Reifer and Sudler 1996,
13–37).
The first attempt to decentralise US resources was made by Franklin Roos-
evelt with his proposal for an international New Deal to rebuild war-ravaged
countries, including the Soviet Union. But this idea was rejected by a national-
istic Congress which relegated issues of world order to a second plane. The
deadlock produced by the amount of wealth and assets accumulated in the US
alongside its reluctance to play a hegemonic role in the world economy opened
up the possibility of a regionalised world economy. In this context, conditions

62 Chapter 2
were ripe for the socialist countries to extend their influence. The Soviet Union
and Eastern Europe were emerging as likely economic partners for Western
Europe, and in Asia revolutionary China appeared to be a potential partner for
Japan – which had been destroyed as an imperialist power – and the two Ko-
reas. To avoid this happening, the US seized on the issue at the top of its na-
tional and international agendas: security. Between 1947 and 1954 it embarked
on a hysterical campaign against the worldwide political threat posed by so-
cialism. This campaign marked the first stage of the Cold War (Arrighi 1996,
Hobsbawm 1994). Through it, the US was able to systematically use foreign
currency to rebuild the economies of Western Europe and Japan and boost
international trade. The resources it transferred to them by building and main-
taining military bases far outstripped inflows in the form of direct economic
aid. After 1950 the world economy returned to more integrated, stable and in-
tensive growth than in 1939–44, and this led to the A-phase of the post-1939
Kondratiev cycle coinciding with the start of a new systemic cycle.
The US systemic cycle swang the pendulum back towards Arrighi’s corpo-
rate-national institutional model, making hegemony conditional upon reach-
ing a compromise with the intrastatal demands coming out of the periphery
and semi-periphery. As with the Dutch cycle, the pendular movement towards
internal economies made it harder to institute liberalism as the global hege-
monic ideology. The accumulative dimensions of this movement added an
extra layer of complexity to the task. The US had to articulate newly defined
intrastate relations with the development of the global world-economy be-
queathed to it by the British cycle. This meant it had to rely on a series of inter-
governmental bodies, although the US state still controlled most initiatives
and never subordinated its sovereignty to such outfits.
The creation of the United Nations was crucial to the North American sys-
temic cycle. It represented a supranational agency that legitimated decolonisa-
tion processes and the international right to self-determination. But despite
the suggestion of democratic institutional arrangements, the UN is still gov-
erned oligarchically on behalf of the leading economic powers (and, on certain
issues, emerging political powers). Politically, the United Nations General As-
sembly, operating on a one-state one-vote basis, advises the Security Council,
which decides on matters of peace, war and diplomatic relations. The Security
Council has five permanent members with vetoing rights: the US, UK, France,
Russia (previously the ussr) and China. In contrast, on the UN’s main eco-
nomic bodies, namely the Bretton Woods-founded imf and World Bank, a
country’s decision-making power is determined by its financial power, which
reflects the size of the quota it pays into said institutions. But these payments
are not open market transactions: to increase its quota size a state must have

sufficient funds available, and the subsequent transfer of political power must
be accepted by the institution, with the US holding a right of veto. That is why
the power of veto was tied to a country’s percentage of votes/quota size.
Liberalism assumed a markedly political character during this period, func-
tioning far more as a centrist ideology that used reforms to unite diverging in-
terests around world-economic expansion than as a doctrine for imposing the
imperatives of the free flow of capital and goods. Despite significant tariff re-
ductions compared to the protectionist wave of the 1930s, no agreement was
made to extend multilateral liberalisation, and so the General Agreement on
Tariffs and Trade (gatt) remained in place until it was replaced by the World
Trade Organization (wto) in the 1990s. The integration of the world economy
was initially achieved as a result of US state-led resource decentralisation, but
it later gained its own momentum and was mainly identified with internation-
al investments in domestic markets made possible by the techno-scientific
revolution in the US and other central countries in the 1940s, 1950s and 1960s.
The technical and scientific revolution meant that as science predominated
over technology, equipment and machinery became obsolete before becoming
physically unusable and so could be reused in countries where it was still com-
petitive. This enabled the US to support industrialisation and protectionism in
peripheral and semi-peripheral countries prepared to remain subservient to
the technological leadership of its corporations.
The ascendant phase of US hegemony was thus based on the following
factors:
a. Technological and financial leadership of the electromechanical techno-
logical paradigm, associated mainly with automotive manufacture47 but
also with the military and machine-making industries. This leadership
relied on the system of Fordist regulation, which prioritised the incorpo-
ration of transaction costs. A productive hierarchy among the workforce
along with greater workloads became crucial to organizing economies of
scale. Technological leadership was transformed into hegemony when it
stimulated transaction economies across the world through direct invest-
ment. This led to an increase in international transactions between units
belonging to the same firm, to the point where by the late 1970s they ac-
counted for more than a third of world trade (oecd 1991, 390; 1996b, 29).
47 In 1913 the number of passenger vehicles in circulation in the United States was 1,190,000,
while in France, Germany, the United Kingdom, Italy, the Netherlands and Japan the com-
bined total was 280,000. By 1950, these figures had reached 40,339,000 in the US and
4,803,000 in the other countries, and by 1973, 101,986,000 and 72,917,000 respectively
(Maddison 1995, 72).

64 Chapter 2
b. US articulation of the world economy via direct investment in receiving

countries’ domestic markets. These investments helped international
trade to expand to levels that outstripped even those attained during the
British cycle.48 There are two explanations for this. Firstly, each pendular
swing of a systemic cycle speeds up world-economy interactions and
makes for a more technically integrated international division of labour.
The world-economy then tends to expand its influence over local or
subsistence market-focussed activities independently of the movement
toward either territorialist or corporate-national forms.49 The second rea-
son relates to the hegemonic state’s increased strength and the type of
hegemonic relationship it establishes. Unlike Britain, which unilaterally
opened up its internal market between 1846 and 1931, the US government
48 In 1913, during the British cycle, British exports accounted for 17.5% of its gdp, and world
exports accounted for 7.9% of world gdp. In 1973 during the US cycle, US exports repre-
sented 4.9% of gdp, but world exports reached 10.5% of world gdp. Between 1820 and
1870 world exports expanded 7.9 times faster than global gdp per capita, reflecting the
cosmopolitan-territorialist movement of the pendulum, whereas between 1950 and 1973
they grew just 2.6 times faster, thus denoting a swing in the opposite direction. However,
as per capita gdp grew almost six times more in 1950–1973 than in 1820–1870, world ex-
ports expanded at a rate of 7.88% in the former period, compared to just 4.2% in the latter
period (Maddison 2001, 363).
49 The quality of territorialist-cosmopolitan or nationalist-corporate systemic expansion
can be quantitatively assessed in the light of historical patterns. We saw that one of the
main secular tendencies of the modern world system is unlimited accumulation. One way
this manifests itself is through world-economic growth, which assumes an increasingly
global dimension as it encompasses new regions and articulates their local economies
through an international division of labour. This growth is expressed by international
trade expanding faster than world gdp growth. Cosmopolitan or corporate cycles affect
this secular average. In cosmopolitan cycles world exports grow at least 3.5 times more
than world gdp per capita, and during corporate cycles by up to 3 times more. During the
British cycle’s expansive period from 1820 to 1870, exports grew 7.9 times more than world
gdp per capita. But during its crisis period the pendulum swing back in the opposite di-
rection, and exports grew just 2.6 times more between 1870 and 1913. Then came the sys-
temic chaos that halted the expansion of the world system and plunged its secular trends
into crisis. Thus between 1913 and 1950 export growth matched that of gdp per capita.
During the expansive phase of the US systemic cycle (1950–1973), it grew 2.7 times more.
But it accelerated again when US hegemony entered into crisis exceeding gdp per capita
3.8 times from 1973 to 1998.
The above calculations are based on Maddison’s indicators (Maddison 1995, 2001,
2010). We used the ratio of export growth to to per capita gdp as our basic indicator for
establishing the quantitative differences between the cosmopolitan and corporate peri-
ods. We then took the difference (1.1) between the period of lowest cosmopolitan growth
(3.8) and the period of highest corporate growth (2.7) and divided it by three in order to
designate the limits of the swings that occur during each cycle and a transitional zone.

did not give up its bargaining tool, i.e. the liberalisation of its domestic
market. Instead it signed a series of diplomatic agreements and bilateral
treaties to achieve an even greater degree of free trade in the world econ-
omy than Britain had enjoyed (Arrighi 1996, 71).
c. Greater state intervention in the economy.50 To enable this the US govern-
ment introduced currency regulation through the Federal Reserve Sys-
tem acting in conjunction with other central banks (Arrighi 1996, 72).
This allowed it to spend more on the economy and specifically on ex-
panding trade and production in the world-economy. This increase in
spending was directed mainly to the military sector, whereby the US gov-
ernment made the largest state transfer of resources out of its economy
and put into maintaining its military bases overseas. It was also tied to
the country’s cutting-edge technology sector51 and protecting other more
underdeveloped but politically critical sectors of the economy.
d. The creation of the United Nations and other intergovernmental bodies.
Their main tasks during the expansive phase of US hegemony were po-
litical and involved setting up new institutional arrangements for the
world economy by bringing the periphery into the interstate system, thus
legitimating decolonisation processes in Europe’s Asian and African em-
pires. UN actions did not replace unilateral US initiatives, rather the
United States used the UN as an additional means of securing its hege-
mony. Furthermore, the UN’s new economic bodies did not play any ma-
jor role until US hegemony entered into crisis.
e. The ideology of hemispheric integration centred on the free Western world.
This integration was in fact intended to go far beyond the West, and its
violent Eurocentricity was exposed when it sought to impose freedom on
the East and westernise it via the institutions of the liberal State. The
ideology was expressed on two levels: by military Keynesianism and de-
velopmentalism. Military Keynesianism made anti-communism a pillar
50 As discussed earlier, the State gets more involved in organising the world-economy with
each successive cyclical phase. In the Genoese-Spanish cycle, capital was allied with an
imperial state that played a key role in the colonial conquest and protection of territories.
But the Spanish state failed to take advantage of the commercial exploitation of the colo-
nies, which mostly remained under the control of third parties. In the Dutch cycle, the
state merged with a capitalist structure and brought commercial exploitation and mili-
tary protection into the same state unit by granting a charter to companies. During the
British cycle, the state was directly responsible for administering the colonial apparatus
and built up its own private enterprises from the transfer of tax revenues or payment for
services such as cargo transport by its merchant navy.
51 Mainly through government purchases and investment in R&D.

66 Chapter 2
of the welfare state when global economic recovery – which allowed

workers in the centre to demand higher direct and indirect wages – was
tied to the creation and maintenance of US military bases in regions of
strategic value to the defence of US hegemony. This dichotomy divided
the social-democratic and communist forces that had fought fascism to-
gether in the Popular Fronts (1934–39) and the Resistance (1940–45). De-
velopmentalism, on the other hand, sought to extend industrial moderni-
sation to the periphery via foreign direct investment, with international
agencies such as the World Bank there to help put the necessary infra-
structure in place. It also favoured protecting domestic markets by apply-
ing some degree of tariff protection.
The current crisis of US hegemony emerged clearly for the first time between
1967 and 1973. We shall revisit this in more detail later, restricting ourselves
here to its more general aspects. The crisis originated in the system’s core as a
result of the obsolescence of the national system of innovation compared to
the technological microelectronic paradigm that by the late 1960s had become
the key to future growth and accumulation. It has chiefly manifested itself
through trade and current account deficits, above all with East Asia (Japan,
China, South Korea, Taiwan and India). These deficits reveal the shift in eco-
nomic dynamism away from the system’s centre and towards the latter region.
There are also important socio-cultural and institutional aspects to the cri-
sis. The most notable example of the former has been the fight against bureau-
cracy and hierarchies which brought the trade union and student movements
together in the anti-systemic mobilisations of 1968, thus managing to unite
two previously separated historical forces: workers and universities. In the fol-
lowing decades this pattern repeated itself throughout the world-economy,
reinvigorating the cultural and intellectual climate and allowing the spread of
Marxism in the universities. On a deeper level, the crisis signalled the emer-
gence of a new historical subject seeking to challenge and overcome the divi-
sion between manual and intellectual work.
In terms of institutional arrangements, the breakup of the Cold War order
following Soviet disintegration was of crucial importance. This was a conse-
quence of the second Cold War, when the US state under Reagan responded to
transnational capital flight by building up a huge national debt, hiking interest
rates, and directing public spending towards defence and the Star Wars proj-
ect. Its aims were two-fold: to overcome the military difficulties exposed by
defeat in Vietnam, and to stretch the Soviet Union’s resources by dragging it
into a new arms race. As a result, economic stagnation prevented the ussr
from competing in such a race and it fell apart. Meanwhile US military
Keynesianism – hitherto articulated through the welfare state – entered into

crisis, and the virtuous architecture of its hegemony in the centre and strategic
semi-peripheral regions began to crumble. The US state had stopped decen-
tralising resources and now faced liquidity crises on account of its public, trade
and current account deficits, which were draining resources from the world
economy. Entering the 1990s, mounting debts forced it to recalculate and re-
strict its overseas defence budget for the decade ahead.
In the peripheries the crisis of US hegemony had become apparent a little
earlier. It began in Latin America with the 1959 Cuban Revolution before a se-
ries of military coups starting in Brazil in 1964 made it more obvious. The crisis
of the Brazilian model signalled the failure of developmentalism as a strategy
of international insertion for the region and the peripheries in general, as the
promise to lay the ground for political liberalism by opening economies up to
foreign capital went unfulfilled. As dependency theorists Theotonio Dos San-
tos, Ruy Mauro Marini and Orlando Caputo pointed out, direct investment did
not mean foreign savings stayed in the region. It was just a moment in the cir-
culation of international capital, and only translated into high rates of rein-
vestment in the host country under the pressure of competition. Otherwise
profits were channelled back to the countries of origin. Capital inflows were
followed by outflows that decapitalised dependent economies in the medium
and long term. This situation destabilised political liberalism in Latin America
and undermined State support for universal suffrage and social rights.
Asia tested the limits of US hegemony more than any other region, present-
ing it with a series of economic, political and military challenges. The hege-
monic power’s difficulties in managing decolonisation in the European
empires forced it to make huge concessions to strategic Asian countries, who
in return set themselves up as local powers that would drive capitalist expan-
sion and contain socialism. This led to the offer of ‘development by invitation,’
which involved the US supporting agrarian reform, industrialisation and the
formation of a new ruling elite in Japan, South Korea and Taiwan. Vast sums of
money were transferred in the form of military occupations or subsidised cred-
its. But the US was also forced to accept the protectionist approach of local
ruling elites, with regard not so much to tariffs as restrictions on foreign direct
investment. As a result of this political liberalism, within 20–30 years East Asia
had mounted a serious challenge to the United States’ technological, commer-
cial and financial leadership52 (Maddison 1998, 2000; Medeiros 1998; Johnson
1995).
52 Nonetheless, as we shall see, economic challenges to US hegemony do not always follow

the sequence of ‘development by invitation’ followed by local initiatives. In China, local

68 Chapter 2
Vietnam represented the US apparatus’ first political and military defeat. It

was not just a defeat at a local level, but one that saw popular anti-imperialist
struggles in the periphery and the hegemonic centre combine as a movement
to score a geopolitical victory over the hegemon just as the latter was entering
a crisis. It is a movement that brings to mind the American Civil War or the
process leading to German unification at the border of Britain’s hegemonic
crisis, in that it marked the emergence of a historical subject capable of chal-
lenging the hegemonic State. If, in those historical moments, that subject rep-
resented a combination of organised forces within a nation-state, then today
we appear to be witnessing the birth of a new organisational form – a suprana-
tional set of social forces capable of laying the foundations of a new world
system between 2015/2020 and 2045/2050. In our view there is strong evidence
to support such a claim.
2.7 Systemic Cycles: Balance and Prospects

Systemic cycles are crucial to the development of historical capitalism. Under-
standing their behaviour can help the social sciences to vastly improve its pre-
dictive powers and provide social movements with an initial basis on which to
identify their goals and the potential for anti-capitalist action.
The theory of systemic cycles was mainly developed by the group that began
meeting at the Fernand Braudel Center in the 1970s. Wallerstein, Arrighi and
Silver advanced it the most, with Wallerstein the first to systematically theorise
systemic cycles. Despite the limited nature of his conceptual definition of
hegemony, his model of the cycles is still an extremely useful analytical tool.
Wallerstein’s bipolar model differentiates between short periods of hege-
mony and lengthy periods of rivalry. He sees hegemony chiefly as a matter of
economic leadership – a view we have already challenged here by pointing out
that it can survive economic decline providing the State is still able to exercise
institutional and systemic leadership. The usefulness of Wallerstein’s model
lies instead in the way it explains the hegemon’s transition from the leadership
phase to economic decline. This shift is determined by said hegemon’s devel-
opment of global liberalism. Although global liberalism helps the dominant
power benefit from its own leadership, it also creates the conditions under
which that leadership might be revoked.
For Wallerstein there are two dimensions to global liberalism: the free flow
of factors of production and commodities, and the establishing of a negotiation-
friendly environment at the intrastatal and interstatal levels in order to
development initiatives were up and running long before they picked up even greater
momentum by becoming articulated with the centres of the world system.

legitimate the institutional order.53 Yet both of these features have contradic-
tory effects, at first strengthening the economic hegemon’s powers of penetra-
tion and persuasion only to later undermine them. This happens for two
reasons. Firstly, the circulation of factors of production implies the diffusion of
technological expertise and encourages countries in the centre or on its bor-
ders to copy and develop products without having to cover the initial innova-
tion costs. Secondly, the diffusion of compromise and democracy internally
necessitates concessions to workers and technical staff that push production
costs above those of the hegemon’s competitors.
Arrighi and Silver (1999) critique Wallerstein’s model, but in reworking it
they retain many of its features as part of their own more advanced theory of
systemic cycles. They point to its lack of historicity: systemic properties are
predetermined in relation to the system’s actors, whom they influence exoge-
nously. The authors argue that although systemic properties do coerce and or-
der their actors, the latter are equally capable of altering and reorganising said
properties when a new hegemony is established. Systemic institutionality thus
depends on the particular forms assumed by governmental-business complex-
es at each cyclical stage. Loss of leadership status and cyclical crisis are deter-
mined not only by the ability to imitate the leader’s developmental path, but
also, above all, by the ability to establish a new organisational paradigm that
surpasses the previous system of innovation. Consolidation of this new para-
digm develops the system’s secular trends but also changes its systemic
properties.
We saw that Arrighi distinguishes between two core, pendular models of
organisation: the cosmopolitan-imperial model and the corporate-national
model. But these models do not repeat themselves in the same way each time.
Systemic cycles represent patterns that repeat themselves over the course of
the secular, evolutionary trends that are an irreversible aspect of the modern
world system’s development. Some situations or aspects repeat themselves in
new ways and require different approaches and answers depending on the par-
ticular level of development and organisation of the social forces.54 This
53 In each successive hegemony we can see how institutionality grows out of legitimacy.
This was first noticeable in the Spanish Empire’s flexibility towards Genoa in tax matters;
later, in the development of parliamentary institutions and the principles enshrined in
the Peace of Westphalia, the notion of popular sovereignty and the Concert of Europe;
and most recently, in the growth of universal suffrage, the welfare state and the multilat-
eralism promoted by the UN and other intergovernmental bodies. See Wallerstein (2011a).
54 The combination of cyclical and systemic perspectives highlighting evolutionary secular
trends offers the social sciences a methodology full of analytical promise – one able to
reflect on the integration of repetition and difference or of retrospective and prospective

70 Chapter 2
d ifferentiated repetition has implications for the way the cycles are measured
because the development of capitalism’s secular trends influences the length
of each repetition.
Whilst we should qualify Wallerstein’s claim that the causes of hegemonic
decline lie in the development of global liberalism – as each cycle produces its
own institutionality – we should accept the argument that the factors of pro-
duction become more internationalised with each expansionary phase, regard-
less of whether the dominant form is the flow of capitals, as with the US cycle,
or simultaneously the flow of goods, as in the British cycle. Concerning forms of
State organisation, the theory that hegemonic powers are propped up inter-
nally by political liberalism also needs qualifying. It would be more accurate to
say that each hegemon strives for domestic legitimacy because otherwise it
cannot achieve its goal of representing the consensus in the world system.
Notwithstanding these caveats, we have before us the main features in the
establishment and exhaustion of systemic cycles. The internationalisation of
the factors of production boosts production and surplus value appropriation
in the world-economy. But it also creates an environment characterised by
technological diffusion, which becomes an obstacle for the hegemon when it
starts outweighing the benefits obtained. The same logic applies to an internal
environment characterised by legitimacy and negotiation: it strengthens hege-
mony, but then reduces competitive edge when it makes production costs too
expensive. This allows a transfer of economic dynamism towards competitors
working with different organisational models. The more intense the diffusion
of technology and the broader the hegemonic state’s social base, the shorter
the systemic cycle. This confirms a cyclical pattern inherent to the modern
world system: wherein the more advanced its secular trends, the shorter its
systemic cycles.
In The Long Twentieth Century, Arrighi sets out to measure the length of sys-
temic cycles and prove they are getting shorter. As the most suitable yardstick,
analysis by articulating the arrow of irreversible/secular time with cyclical patterns of

temporary regression within a defined structure. Such a combination also helps integrate
determination and indetermination because it affirms the historicity of conjunctures by
revealing the individuality of the combinations which define its general frameworks,
whilst also placing action and the possibilities it creates at the heart of those individuali-
ties. This approach was fashioned by Nicolai Kondratiev, but a more sophisticated version
of it later appeared in the world system theory developed by Immanuel Wallerstein,
Giovanni Arrighi, Terence Hopkins, Beverly Silver and their followers. The Long Twentieth
Century (Arrighi 1996) and Chaos and Governance in the Modern World System (Arrighi
and Silver 1999) are both examples of empirical research that explore these possibilities.
In these works, the authors seek to identify tendencies and potential for action in the 21st
Century by looking for repetitive patterns, long centuries and systemic transitions.

he uses the interval between the crises that mark each successive cycle, i.e.
between the signs of autumn that bring each expansionary phase to a close. He
chooses this yardstick because of the degree of consensus over when the crises
took place, and concludes that each systemic cycle is significantly shorter than
the one before. Thus, the Genoese cycle lasted about 220 years, from 1340 to
1560; the Dutch cycle approximately 180 years, from 1560 to 1740; the British
cycle 130 years, from 1740 to 1870; and the American one barely 100 years, from
1870 to 1970.
We propose a different kind of periodisation. If we instead measure the du-
ration of each systemic cycle from its starting point, we can predict when the
current US cycle will end. This means starting from the creation of the institu-
tional bases of its hegemony following the wars of systemic chaos. That would
mean the US cycle began between 1945 and 1950. If we then add the aforemen-
tioned one hundred years but subtract from it the thirty-odd years of systemic
chaos, understanding it as a period of transition rather than hegemony, then
we can anticipate the US cycle ending between 2015 and 2020, when the task of
establishing a new world system will have reached the height of urgency.
3 Kondratiev Cycles
3.1 Perspectives on the Cycle

Kondratiev cycles are another crucial movement in historical capitalism’s de-
velopment. Discussion about them is heavily influenced by the context it takes
place in. Long cycles were identified and theorised between 1913 and 1939,
principally by J. Van Gelderen, Nicolai Kondratiev and Joseph Schumpeter. Van
Gelderen is credited with discovering them in 1913, an achievement which has
gone somewhat unrecognised because he wrote in Dutch.55 But the first really
extensive and systematic work on them was done in the 1920s by Kondratiev,
who was unaware of Van Gelderen’s earlier articles.
Kondratiev’s key work was The Long Wave Cycle (1984), first published in
1925. In it he distinguishes a series of long cycles that last 48–60 years and date
back to the late 18th century. He divides each cycle into two phases, corre-
sponding to economic growth (A) and recession (B).56 His periodisation allows
55 This was the year in which Van Gelderen published his work on long waves, Springvloed:
beschouwingen over industriële ontwikkeling en prijsbeweging.
56 Kondratiev’s periodisation is as follows: the first cycle consisted of an ascending phase
from 1789 until 1810–1817, and then a descending phase lasting until 1844–1851; in the
second cycle the upswing lasted from 1844–1851 until 1870–1875 and the downturn be-
tween 1870–1875 and 1890–1896. He also identified a third cycle whose ascent began in

72 Chapter 2
for a 5–7-year margin of uncertainty to account for the period of oscillations

before the new cycle clearly emerges. For Kondratiev, the cycles are not abso-
lute tendencies but essentially oscillations around evolutionary trends. He
argues that capitalism is an expanding system with a moving level of equilib-
rium. Cycles represent fluctuations around this movement and should be un-
derstood as phenomena that influence capitalism’s rates of expansion and
qualitatively alter their intensity.
Kondratiev uses a series of indicators to understand long cycles: commodity
prices, interest rates,57 nominal wages, foreign trade, coal mining and con-
sumption, steel and iron production, and, lastly, bank portfolios and deposits.
Of these indicators, only commodity prices and interest rates do not present
evolutionary trends.58 The other values must be divided against population
size to construct theoretical series that reflect per capita rates of expansion.
For Kondratiev, there are three types of cycles. Each one corresponds to the
relationship between obsolescence and demand, or between the wearing out
and production time of different commodities in capitalist society. These com-
modities are:
a. Consumer goods, raw materials and means of production which require
little time or expenditure to produce. They correspond to the four- or
five-year cycles discovered by Kitchin.
b. Means of production requiring a medium-term time frame and a certain
amount of expenditure to be produced. They give rise to Juglar’s seven to
eleven-year cycles.
c. The basic means of production, which generate long cycles lasting doz-
ens of years. Their production requires a lot of time and expenditure as
well as the training of skilled labour.
The introduction into the capitalist economy of the radical innovations gener-
ated by modernising the basic means of production alters the structure of pro-
duction costs and shifts the equilibrium level in favour of innovative groups.
However, introducing them requires not only their physical availability but the
presence of other factors too. The absence of these additional factors explains
the years of delay between when an invention appears and when it enters the
economy as an innovation. Kondratiev describes the four pre-conditions that
must be met for inventions to be transformed into innovations: (1) sufficient
capital funds must be available to invest in introducing the new invention; (2)
1891–1896, giving way to a downswing in 1914–1920. He was unable to examine how this
last downswing ended because Stalin had him shot by firing squad in 1938.
57 Kondratiev did not have access to the data needed to make a detailed study of interest
rates, and so instead had to rely on quotations of interest-bearing securities, which vary in
inverse proportion to interest rates.
58 In these cases cyclical oscillations are based on absolute values.

the investment must be profitable enough to produce an accumulation curve

higher than the investment curve; (3) Capital must be concentrated in power-
ful business centres, and (4) a credit system must be set up to provide sufficient
quantities of cheap capital. Only if these organisational conditions are fulfilled
can a new cycle of large-scale innovation find broad application.
Once in motion the economic cycle encounters limits to its continued ex-
pansion. These limits become a real barrier when, after 25–30 years, the invest-
ment curve rises above the accumulation curve. This can be explained by the
increasing obsolescence of the means of production and the rising demand for
investment capital, which is driven by inter-capitalist competition. The result
is a negative inflexion in the surplus generation curve and higher interest rates
which make investment dearer and force down profits, giving way to a down-
ward-depressive wave. This downward wave in turn creates the conditions for
another long cycle to establish itself over a similar time frame.
The downturn encourages a quest for technological innovations that can
cut production costs, drag down prices, stop interest rate increases and then
reduce them by eliminating excess capital demand and increasing hoarding
directed at fixed assets such as gold and bonds fixed income. The value of gold
then rises, peaking as prices hit rock bottom. However this leads to an increase
in its production, which is made possible by the availability of technological
innovations capable of raising the accumulation curve and the presence of ac-
cumulated savings. The increase in gold production brings its value crashing
down and pushes prices up, thus generating the abundance of capital needed
to set up a credit system to support the broad application of a range of innova-
tions which underpin a new cycle of development.
The long cycle conditions the Juglar and Kitchin cycles by giving them their
dominant tone. Thus during an A-phase they are dominated by the upturn –
either because of its greater intensity or longer duration. The opposite then
occurs during a downward B-phase.
This is Kondratiev’s chief model of cyclical oscillations. For him, it is mainly
explained through economic factors, although political variables such as social
and military upheaval can generate unproductive costs and intensify the oscil-
lations. Despite this caveat, his arguments came in for severe criticism. Trotsky,
for example, argued that unlike in Marx’s ten-year cycles, factors external to
capitalist accumulation – the takeover of new countries and continents, the
discovery of new natural resources, wars, and revolutions in the superstructure
organization – were the axis of long periods studied by Kondratiev (Trotsky
1977, 9). His position was later taken up by Ernest Mandel (1978, 1980), albeit in
a more nuanced fashion.
Kondratiev defended his position against Trotsky’s criticisms by asserting
that technological, geopolitical and superstructural factors were all heavily

74 Chapter 2
d ependent on the economic cycle and its phases. He pointed out that techni-
cal and scientific discoveries are not random events and that new techniques
are available long before they are implemented, explaining their incorporation
into the economy in terms of the way cycles function. The same holds true for
new territories: they are discovered long before they are incorporated into the
capitalist world economy, as with Argentina, Canada, Australia and New Zea-
land. Neither are wars and revolutions random events, but an integral part of
upswing periods, which respond to the struggle for markets and raw materials
or the impetuous projection of new economic forces onto obsolete structures.
Richard Day (1976) provides a good analysis of the Kondratiev-Trotsky de-
bate, showing that it reflects two major perspectives on capitalist societies.
Kondratiev cites the existence of a moving equilibrium as evidence that capi-
talist development is governed by general laws, of which cycles are a specific
expression. Trotsky, on the other hand, points to the existence of non-periodic
phases of capitalist development as a result of internal and external factors
joining forces in its logic of accumulation. In his account, endogenous cycles of
capitalism (the so-called Juglar cycles) represent periodic phases.
Kondratiev’s position has clear advantages over that of Trotsky. It does not
reject the theory of general laws of capitalist development but enables us to
think about them dialectically, in the understanding that each moment of this
development is, at one and the same time, unique and subject to the general
laws governing it. Cycles revolve around an equilibrium with evolutionary ten-
dencies, in which each cyclical repetition represents a specific moment of
capitalist development. Trotsky’s approach makes it impossible to analyse this
development dialectically. In positing the centrality of non-periodic phases, a
result of elements internal and external to capitalism combining, Trotsky ren-
ders the very notion of the general laws of capitalist development that were
Marx’s chief concern in Capital and the Grundrisse fleeting and unrealisable.
Trotsky’s main mistake – his methodological separation of what is internal
from what is external to capitalism59 – has to do with the difficulty of distin-
guishing between two levels of analysis that have in practice been closely
intertwined ever since the Industrial Revolution: that of the capitalist mode
of production and that of historical capitalism. There is no law of the capital-
ist mode of production that does not act on elements external to it, an exter-
nality which describes the unique individuality of the elements that make up
the concrete conditions of existence. But one can only speak of a capitalist
mode of production once those elements are articulated by the logic of surplus
59 As we saw in Chapter 1, the methodological separation of economic from social and po-
litical reality is typical of liberal thought.

value production and appropriation. We saw that the capitalist mode of pro-
duction only exists because of the development of historical capitalism. This
relationship defines it but does not exhaust the irreducibility of the histori-
cal. It was this irreducibility that led Braudel to talk about a material civilisa-
tion embodying habits, gestures, food and millenary practices. Geography,
technology, products and values do not define capitalism individually but by
the way they are articulated with one another, which is what generates secu-
lar historical processes. The assertion that capitalist logic is powerful enough
to dominate this articulation creates an analytical and political obligation to
theorise the general trends of capitalist development in order to understand
their scope and organise forces capable of halting and overcoming them. His-
torical processes are a feature not only of long cycles but of any cycle repre-
senting capitalist development, and they do not necessarily negate its general
laws.
The Trotsky-Kondratiev debate brought to the fore a fundamental issue that
would go on to feature in subsequent debates around cycles: that of human
freedom, which appears to negate the existence of cycles. It arises in Trotsky’s
argument that the superstructure is relatively autonomous of economic phe-
nomena and can even influence them through wars or revolutions. Kondratiev
gave the key to the answer, although he failed to sufficiently develop it: wars,
revolutions and social upheavals form part of long cycles and are crucial to
their development. Long cycles may be governed by an economic logic during
their development, but they also embrace major social and geopolitical
processes.
However, Kondratiev did not go on to demonstrate that long cycles are pro-
cesses that articulate social and geopolitical factors through an economic log-
ic. They operate by economic logic taking command of relatively autonomous
elements of a technological, social, political and geographical kind. The con-
flicts between the latter’s autonomy and the tendency to control them play out
within the cycle’s time frame and can even lead to its break. We might say that
the economic logic of capitalist accumulation projects itself onto said ele-
ments and tries to make them a function of accumulation. The continuity of
long cycles depends on this succeeding, whilst the autonomy of the elements
in question can rupture the process. Class struggle is a core component of Kon-
dratiev cycles and can determine their continuity or rupture. Since the 19th
century, the global victory of the bourgeoisie in the class struggle has ensured
their expanded reproduction. The issue of human freedom cannot therefore
be deployed against long cycles, which have developed through class struggle
as part of the expansion of the structures of capitalist accumulation across the
world economy.

76 Chapter 2
Whilst rich in ideas, Kondratiev’s thinking also suffers from many gaps. He
uses neither profit rates – the commonest measure of capitalist development
– nor gdp per capita – the chief measure of material expansion – as indicators
of cyclical phases. Furthermore he fails to create a hierarchy of indicators. This
makes it harder to register the change from one cyclical wave to the next, which
often takes too long (5–7 years) to be clearly identifiable. He repeatedly under-
estimates the part played by class struggle in the cycles without any theoretical
need to do so, and technological, political, geographical and territorial process-
es appear determined rather than conditioned by the economic logic of the
cycle. Finally, subdividing cyclical waves would make it easier to explain how
they function, particularly with regard to interest rate movements during the
decline.
Joseph Schumpeter makes an important contribution to the theory of long
cycles in Business Cycles (1989), despite taking some methodological steps
backwards compared to Kondratiev. In it he seeks to understand innovation
and come up with a more detailed model of cyclical waves, which he divides
into four phases (recovery, prosperity, recession and depression).
In order to define cycles, Schumpeter starts from a Walrasian model of static
equilibrium founded on perfect competition. This presupposes a society based
on an exact match of supply and demand and perfect mobility of goods and
factors of production. Such a society is stationary: it produces the same amount
of goods and services each year, enjoys full employment, and leaves no de-
mand unsatisfied. Cycles upset this equilibrium and then restore it in new
forms. But how can these new forms be generated if starting from a neoclassi-
cal definition of society as stationary?
Schumpeter argues that capitalism’s immobility is shattered by external fac-
tors in the shape of innovations and entrepreneurs. Entrepreneurs are agents
who introduce innovations. In principle they do not belong to any social class,
although successful ones attain the status of capitalists. Innovations on the
other hand mean new commodities, organisational forms and markets that
radically alter the combination of factors of production in ways that cannot be
assimilated by changes to the existing functions of production.60 For the firms
that introduce them, innovations generate a premium: profit. Schumpeter saw
this as differential income that cannot be attributed to any factor of produc-
tion (capital, labour or land) via a process of cost allocation. Profit triggers a
60 According to Schumpeter, a function of production is a technological base linking given

quantities of inputs (labour, natural agents, raw materials and equipment) to quantities
of products in combinations that suit productive purposes in a particular setting.

race to innovate, which leads to the diffusion of innovations and, eventually,

elimination of differential income and a return to a state of equilibrium.
The cycle represents this entrepreneur/innovation-led process of disrupting
and then restoring the state of equilibrium. However, the new equilibrium dif-
fers from the initial one founded on perfect competition. Innovations alter the
functions of production that sustain perfect competition and increase techno-
logical scales, making it impossible for the productive inputs to be infinitesi-
mally decomposed. This ends up restricting the mobility of goods and factors
of production and creates new foundations for business, which Schumpeter
identifies as oligopolies and monopolistic competition.
The author’s four-phase cyclical model builds on and complements the ba-
sic two-phase cycle. He argues that the prosperity phase is produced by entre-
preneurs introducing radical innovations. In order to do this they must borrow
from the banks, who provide credit. At first, low demand pressure on this cred-
it allows profit levels to far outweigh interests. However, the success of the in-
novative firms increases the demand for loans and drives interest rates up. This
process would soon see profits eroded by competition and interest payments,
were it not for the fact that innovation occurs in clusters and triggers a flow of
secondary and tertiary innovations. This flow of innovations is the basis on
which Kondratiev cycles become articulated with Juglar and Kitchin cycles.
Secondary and tertiary innovations restore prosperity and boost differential
income enough to soak up the effects of competition. But once the flow ema-
nating from a family of innovations dries up, competition reduces profits to
zero and combines with the intertemporal relationship between interest and
profit, which in the long run brings on a recession. Schumpeter notes that pros-
perity often leads to excessive amounts of credit being made available and be-
coming decoupled from innovation, which is the basis for paying interests. As
a result, the recession turns into a depression that shatters the point of equilib-
rium preventing asset destruction and risks triggering an independent trend
towards liquidation. If the depression is brought to an end then it is succeeded
by a period of recovery, leading once again to a new equilibrium.
Schumpeter certainly made a valuable contribution to the study of Kondra-
tiev cycles. He used the concept of clusters, or families of innovations, to un-
derstand how Kondratiev, Juglar and Kitchins cycles condition one another. He
also opened up a wide range of possibilities for prospective analysis.61 That
61 Schumpeter (1989, 175) sets out a 56-year model for the long cycle, divided into 28 years of
prosperity and 28 years of recession. During the upswing, expansion is greatest in years
1–5, 9–14 and 19–24, peaking in years 1–2, 10–11 and 19–20. During the downswing, the
decline is most pronounced in years 33–38, 43–48 and 52–56, with troughs in years 33–34,

78 Chapter 2
said, his approach is rooted in an erroneous view of capitalism and its dynam-
ics. It sees profit only as differential income and not as a general phenomenon
structuring capitalism. That is why he attributes its existence to external forces
acting on capitalist society and not to its internal logic.62 This ends up blinding
him to capitalism’s secular trends and the role of the cycles in their develop-
ment. Schumpeter’s innovation cycles are unique events linked to the activity
of innovation clusters. Once they are exhausted, however, nothing guarantees
their resumption, because having failed to endogenise technological change
within capitalism the author is left with no theoretical means of providing
such an assurance. This limited Schumpeterian and neo-Schumpeterian
thought, which overstated the application of the concept of the technological
paradigm, its usefulness notwithstanding, whilst failing to articulate it with
the law of value as the factor that drives technological paradigms and explains
them historically.
During the post-war economic boom, thinking around cycles stagnated
amidst Keynesian attempts to eliminate the risk of recession via countercycli-
cal policies. But with the exhaustion of the ascending phase of the post-war
Kondratiev cycle it made a comeback. In Marxist literature it mainly reap-
peared through the writings of Ernest Mandel and Theotonio Dos Santos; in
neo-Schumpeterian literature through authors like Christopher Freeman, Car-
lota Perez and Luc Soete, and in world system theory through Immanuel
Wallerstein and Andre Gunder Frank.
Mandel returned to Kondratiev cycles in several works, including his two
classics, Late Capitalism (1985b) and Long Waves of Capitalist Development: the
42–43 and 52–53. As we discuss further on, these temporal patterns are only helpful as
indicators and should not be used mechanically.
62 Schumpeter’s definition of profit as a surplus that cannot be attributed to any production
cost is interesting. He fails however to point out that this situation is institutionalised in
capitalist society through the wage. The wage is the core regulator of the difference be-
tween the value of labour and the value of labour power, and furthermore enables the
latter to be appropriated in the productive process. Technological change is part of a so-
cialised labour process controlled by capital that systematically generates income not at-
tributable to production costs. The pursuit of profit is one of the main objectives of the
capitalist economy, which uses technology to generate the aforementioned difference in
value. Although Schumpeter undoubtedly represents an improvement on the neoclassi-
cal perspective, he still holds what is ultimately a very petit bourgeois view of capitalist
development, perceiving capitalist accumulation not as a socialised process but as relying
upon the initiative of individual entrepreneurs. That is why he predicted capitalism
would come to an end during the monopolistic competition stage, when innovations are
subordinated to the routine, socialised practices of corporate bureaucracy. This bureau-
cracy would undermine and eventually replace individual entrepreneurialism along with
bourgeois property. See Schumpeter (1950).

Marxist Interpretation (1980). His biggest contribution was to revive the con-
cept of rate of profit as an indicator for studying Kondratiev cycles. This
involved a methodological review of their causes and dynamics. In both Kon-
dratiev and Schumpeter, the chief driver of long cycles is the appropriation of
wealth via inter-capitalist competition. Innovation gives rise to extraordinary
profits or differential income, which are then threatened by the diffusion of
innovations. But although this is a key aspect of the way cycles operate, it does
not fully capture their dynamics. Extraordinary profit cannot unleash an ex-
pansive long wave unless it is accompanied by an increase in the average rate
of profit.
In Mandel’s analytical model of long waves the rate of profit takes centre
stage. The ascendant phase of the long wave is determined by radical innova-
tions that (a) substantially devalue fixed and circulating capital (raw materials
and low aggregate-value productive inputs); (b) increase the profit rate and
therefore the mass of surplus value by reorganising the labour process; (c) in-
tensify capital turnover, and (d) lower interest rates by centralising capital and
the availability of credit in abundance. But halfway through this expansive
phase the profit rate begins to decline due to rises in the organic composition
of capital, the employment rate and the demand for raw materials (Kondratiev
1992). The pressure on costs increases the demand for credit and boosts inter-
est rates and inflation. This leads to intensified class struggle and inter-capitalist
competition which within about ten years reduces profit rates to recession lev-
els. In its first stage, high interest rates and intensified class struggle continue
to feature in this recessive phase of the long wave due to the demand for credit
to pay off debts and working-class resistance to capital’s attempts to rationalise
and reorganise the labour process. Then in the second stage of recession, capi-
tal centralises finances, slashes interest rates and overcomes working class
resistance to the introduction of both technological innovations63 and organ-
isational innovations designed to rationalise the labour process. This phase
generates chronic subinvestment that, taken together with capital centralisa-
tion, the availability of new technologies, organisational innovations and the
increased rate of surplus value, frees up the resources needed for another long
expansionary wave.
Nonetheless, when it came to the concept of long cycles Mandel took a criti-
cal approach and preferred to use the term long waves, which he saw as less
deterministic. He starts from Trotsky’s thesis, critiqued earlier, that long waves
63 Mandel turns to the work of Mensch and Schmookler to suggest that, during the recessive
phase, capital focusses research and development on innovations to create processes that
save on labour, reduce the number of jobs and undermine working class combativity.

80 Chapter 2
are based on a combination of both external and internal elements. But he

qualifies the influence of external causes, arguing that it is the subjective fac-
tors amongst them that now play a more central role, since geographical and
physical factors are increasingly subordinated to the needs of accumulation by
the power of capitalist technology. The indeterminacy for the waves to operate
as cycles has to do with sociopolitical and superstructural factors. But the he-
gemony of external factors64 is limited to the 10–15-year period after a crisis
breaks out, when political conditions exert a decisive influence on the fate of
capitalist rationalisation. For Mandel, the passage from the expansive long
wave to the recessive long wave of capitalist accumulation is economically de-
termined, but movement in the opposite direction, from recession to expan-
sion, is determined by external factors.
The neo-Schumpeterian literature makes important contributions to long
wave analysis. It draws out the relationship between technological and organ-
isational aspects in their development and identifies factors that reinforce
Kondratiev and Schumpeter’s theses concerning the relationship between cy-
cles and long-lasting goods.65 The neo-Schumpeterians develop the concepts
of technological paradigms, technoeconomic paradigms, technological systems
and technological trajectories66 to show the systemic articulation of techno-
logical convergences with groups of radical, secondary and tertiary innova-
tions. Their critique of authors such as Mensch and Schmookler (Freeman,
Clark and Soete 1982) is particularly significant. It shows that the technological
paradigm interlinking and driving innovations during an expansive wave is
formed not during the long recession but during the final phase of the previous
expansive wave. It develops out of a set of technologies with limited individual
64 “If one believes that not just once every fifty or sixty years, but continuously, external
noneconomic forces determine the development of the capitalist economy, then one re-
jects out of hand Marx’s entire economic analysis” (Mandel 1980, 29).
65 Mandel is sceptical about the existence of such goods and their place in long wave theory:
“Our interpretation of the long waves, as compared with those of Kondratieff and Schum-
peter, has the advantage that it does not explain the long waves, their origins, and their
ends by the doubtful existence of ‘long-maturing investment projects’ twenty-five or even
fifty years in duration” (Mandel 1980, 24).
66 Technological paradigms and technological trajectories were developed as concepts by
Dosi (1982), techno-economic paradigms by Carlota Perez (1983) and technological systems
by Cristopher Freeman, John Clark and Luc Soete (1982). The notion of a technological
paradigm concentrates on the convergent and systemic character an innovation imprints
on products and processes. Techno-economic paradigms highlight the economic applica-
bility of a given technological paradigm thanks to its vastly reduced costs. A technological
trajectory designates an innovation path taken by a paradigm shaped by social determina-
tions. Technological systems combine radical and incremental innovations along with or-
ganizational and managerial innovations (Freeman and Perez 1988).

trajectories over the lifetime of a given paradigm, but whose convergence then
gives rise to a new technological model. Railways, cheap steel, assembly lines
and microelectronic chips were all introduced either at the end of an expan-
sive long wave or, at the very latest, in the early years of a recession.
These technological applications get outdated for both organizational and
managerial reasons. Transforming a new technological paradigm into a techno-
economic paradigm requires a series of managerial and organisational innova-
tions at the corporate, social, political and ideological levels that lowers
production costs and increases productivity and profitmaking opportunities
by enabling the broad application of new technologies. This neo-Schumpeterian
insight can be blended with the Marxist idea of including profit rates in long
wave analysis, as Freeman, Clark and Soete (1982) and Theotonio Dos Santos
(1994b) acknowledge.
Whenever a long wave enters into crisis windows of opportunity appear, of-
fering the chance to ‘catch up,’ i.e. to move up the international economic hier-
archy by combining the technological and organisational innovations the new
paradigm requires. This theme is developed in the neo-Schumpeterian litera-
ture, and by Carlota Perez in particular. Perez nonetheless exaggerates the
potential offered by such opportunities. She fails to articulate the concept of
technological paradigms with the secular trends of historical capitalism, which
presuppose an international division of labour and monopolistic competition
that limit such a possibility. Neither does she articulate them with systemic
cycles, which are more enduring than Kondratiev cycles and condition their
ruptures.
Theotonio Dos Santos began using Kondratiev’s cyclical perspective in 1971,
when he published La crisis norteamericana y América Latina (The North
American crisis and Latin America). He explains long cycles in terms of radical
technological innovations that transform capital’s organic composition, the
industrial reserve army, wage levels, institutional forms (entrepreneurial con-
centration, financial centralisation, the internationalisation of capital and
state investment), and, consequently, the rate of profit. Even before the term
systemic cycles was coined, Dos Santos warned that the US economic crisis
triggered by the Kondratiev cycle marked the beginning of its hegemonic
decline. He would later return to this issue in two works where he tried to inte-
grate the different Marxist analyses of the crisis with neo-Schumpeterian per-
spectives (1994b; 1999c).
For Dos Santos, the long-term crisis in the Kondratiev cycle can be explained
by the convergence of crises of accumulation, disproportionality and realisa-
tion with falling rates of profit. The crisis of accumulation is linked to the eco-
nomic boom. The diffusion of technologies reaches its upper limit, putting the

82 Chapter 2
consumption of labour power, raw materials, machinery and credit under

fierce competitive pressure. This leads to an increase in prices and interest
rates, which brings down the rate of profit. But this crisis is not strictly about
the rate of profit’s tendency to fall. The crisis of the falling rate of profit relates
to the increase in the organic composition of capital to realize a new wave of
innovations, which restricts this initiative. To unleash another innovational
wave, labour productivity must be raised and capital accumulated and central-
ised. This is what creates the demand for new business models, state interven-
tion and the internationalisation of capital. The realisation crisis is linked
to the production of goods outstripping consumer demand. It unfolds in
a contextof fierce competition between capitals and is ultimately caused by
the unequal growth of goods and wages. The crisis of disproportionality is re-
lated to imbalances between the volume of production and the demand for
supplies in sectors i (producer of capital goods) and ii (producer of consumer
goods). The restrictions on individual consumption shift accumulation to-
wards machine production and partly away from the dynamism of consumer
goods, thus articulating it with the expansion of the national debt. The final
growth phase of long waves sees the uncontrolled growth of this debt, which is
unpayable due to the slowdown in economic expansion and exposes latent
disproportionality.
The world system theories associated with the Fernand Braudel Center also
draw on Kondratiev cycles but give more weight to systemic cycles. Elsewhere,
Gunder Frank (1998) argues in favour of extending their timespan to one thou-
sand years, but with insufficient statistical support. Now, having described the
various approaches to Kondratiev cycles, we shall review the topic.
3.2 Kondratiev Cycles: a Balance

The theory of Kondratiev cycles arms us with an essential analytical tool for
studying conjunctures. We have looked at the theories which trace the origin of
these cycles back to the late 18th century, when the Industrial Revolution was
getting underway. The cycles relate to a change in the technological founda-
tions of a mode of production. As such they herald new ways of life and sweep-
ing transformations at every level: institutional, political, social, ideological
and economic, making it clear how the main types of production are articu-
lated through a key technological input.67 The articulation of the leading forms
of production through a key technological input becomes clearly evident with
the production of machinery and other kinds of fixed capital.
67 We have used Marx’s definition of fixed capital in Capital as capital which appears as
goods that depreciate over several cycles of production.

As Kondratiev asserts, the cycles named after him represent oscillations

around historical capitalism’s secular trends, which are marked by endless ac-
cumulation. And as Mandel points out, they should be measured on the basis
of fluctuations in gdp per capita expansion and the rate of profit. Their expan-
sive phases produce innovation clusters which become visible in technological
trajectories when primary, secondary and tertiary innovations develop around
a technological paradigm, as described in the (neo)Schumpeterian literature.
Their recessive phases, on the other hand, point to the convergence of crises of
accumulation, disproportion, realisation and the falling rate of profit tenden-
cy, as argued by Theotonio Dos Santos. Relying partly on neo-Schumpeterian
perspectives, he also claims that these recessive phases can only be overcome
through institutional and organisational renewal. This must involve new busi-
ness models; new forms of internationalisation of capital and financial cen-
tralisation; new modes of labour and labour force regulation; new models of
state intervention, and global leadership.
Just as the neo-Schumpeterians assert, the end of each preceding wave of
expansion sees a new technological paradigm brought into being whose diffu-
sion becomes an economic, social, institutional and political matter rather
than a technical one. The subdivision of waves into ascending and descending
phases corresponding to the upper and lower limits of their curves is a useful
model, although we think other more complex subdivisions are also possible.68
In the ascent we can identify a first phase of prosperity and a second one of
maturity. In the downturn, a recessive stage is followed by depression.
In terms of the social and political implications of the Kondratiev cycle’s
phases, let us pause to consider the opinions of Kondratiev and Mandel. Kon-
dratiev argues that social unrest and war are more common during ascendant
phases. Unrest, because that is when the forces of renewal clash with the forces
of obsolescence, paving the way to an expansive wave; and wars, because they
too constitute moments of heightened competition for markets and raw mate-
rials (Kondratiev 1923). In contrast, Mandel argues that it is in periods of reces-
sion that class struggle intensifies, building up during the final stage of growth
and then finally erupting over part of the recessionary period.
68 Depending on the degree to which our analysis needs to fit reality, we could use an even
more complex cyclical model made up of six sub-phases representing the primary, sec-
ondary and tertiary phases of innovations during the expansion and again during the
crisis. In this model, the long expansion consists of three medium-length periods of sta-
bility (resumption, prosperity and maturity) intermediated by internal adjustment crises.
Likewise, the long recession also consists of three periods of stability (recession, depres-
sion and recovery), similarly intermediated. See Martins (2008).

84 Chapter 2
We think both Kondratiev and Mandel were right in this debate, but some
aspects need clarifying. Keen to highlight the reproduction of cyclical mecha-
nisms, Kondratiev emphasises tensions during the ascent, which are inherent
to the process of adjusting to the dynamic forces of a new pattern of capitalist
accumulation. Mandel, on the other hand, is at pains to highlight the potential
for breaking with capital accumulation, and so he emphasises crises that might
present such a danger, i.e. those that break out during the decline. But what
matters is not so much whether periods of heightened social tension occur
more in the upturn or the recession, but that they are stronger when one stage
succeeds another. That is when a working class at the high point of its subjec-
tive organisation confronts a situation of recession that compels it to go on the
offensive. The conflict between forces emerging from a new organisational
pattern of capital accumulation and the resistance they face from the forces of
backwardness is what concentrates major change.
We can therefore locate periods of accumulation of sociopolitical tensions,
some of which might be more intense than others. These tensions are most
concentrated during the transitions from maturity to recession and from de-
pression to prosperity. The other transition points are from recession to de-
pression and from prosperity to maturity.
The most explosive tensions are those that build up in the transition from
maturity to recession. But, with some exceptions, they do not always lead to
the greatest institutional change. This category includes German and Italian
Unification (1862–1870 and 1859–1870), the Meiji Revolution (1868), the Paris
Commune (1871), the start of the Mexican and Chinese Revolutions (1911); the
crises leading to World War i (1914–1918); the Russian Revolution (1917); social
struggles before and after May 1968; the Prague Spring; the Vietnam War and
its socio-political impact, the Third World offensive in the 1970s; the experi-
ence of socialist government in Chile (1970–1973), and Iran’s Islamic
Revolution. The tensions concentrated in the transition from depression to
prosperity, whilst powerful, are more likely to end in institutionalisation. Ex-
amples include the Opium War (1841) leading to the de facto annexation of
China, or the liberal containment of socialist movements in 1848, both of
which paved the way for European imperialist expansion; World War ii
(1939–1945), culminating in the creation of the United Nations (1945) or the
Indian decolonisation and the Chinese Revolution (1949), which were crucial
to overcoming nineteenth-century imperialism in the 1950s-1970s; and the fall
of the Berlin Wall (1989), breakup of the Soviet Union and Gulf War (both
1991), or the Washington Consensus and nafta (1992–1994), which cleared
the way for the further expansion of neoliberalism after it had conquered the
major western centres in the 1980s.

Transitions from prosperity to maturity tend to be periods of progressive

change that partly anticipate the conflicts that follow. They marked the begin-
ning of German and Italian unification, the American Civil War (1861–1865),
the Russian Revolution (1905), the Bandung Conference (1955), the Hungarian
crisis (1956) and the Cuban Revolution (1959).69 On the other hand, periods of
transition from recession to depression tend to be more reactionary, as de-
struction is made an explicit goal. It was in such periods that European coun-
tries began dividing up Africa, fascism emerged in the 1930s as a major force in
Europe and beyond, and neoliberalism became hegemonic across the world
economy in the 1980s.
Because the adjustment to a new upswing in the Kondratiev cycle is ulti-
mately a political and institutional affair, it is possible to skip the depressive
phase and move straight from recession to prosperity. This was the case, for
example, of Latin American countries in the 1930s. In general, this path is tak-
en by progressive forces that use the State to effect key institutional changes at
the national level.
The clarity with which the general features of Kondratiev cycles express
themselves depends on whether they coincide with the oscillating movement
of systemic cycles. If the Kondratiev cycle establishes itself during the develop-
ment of a systemic wave, then its radical and innovative character is augment-
ed or partially contained by either combining or clashing with oscillations in
the cycle. Just as the oscillations in Kitchins and Juglars cycles partially absorb
the dominant trends of the Kondratiev cycle, so the latter partially absorbs the
prevailing tendencies of systemic cycles. That is why the intensity and/or
length of the upturns and downturns in Kondratiev cycles vary according to
the tendency dominating the systemic wave. This applies not only to their eco-
nomic dimension but also to political trends. Periods when a descending sys-
temic phase coincides with an ascending phase of the Kondratiev cycle have
failed to deliver much by way of reforms. The 1896–1913 period remained hos-
tage to the institutionalism of 1870–1890, which promoted the colonial parti-
tion of the world. This was despite important developments such as the first
stages of the Russian, Mexican and Chinese revolutions, which later led to ma-
jor transformations. But the existing institutional model only really fell apart
in the years of systemic chaos between the 1910s and 1940s, with its last vestiges
destroyed in the 1950s, 1960s and 1970s.
69 For Vânia Bambirra (1974b, 138–155), the Cuban Revolution should be understood not only
in terms of how the process of modernising rural relations was blocked by worsening
terms of trade for primary products, but also by looking at foreign capital-led industrial
development in the post-war period and how it was affected by the 1958 crisis with the US.

86 Chapter 2
The current epoch combines the downward trend in the US systemic cycle
with the emergence of a new Kondratiev cycle. It represents a particular con-
junctural timespan whose historical character has permitted only limited eco-
nomic and sociopolitical gains – a prisoner still of the changes imposed during
the 1980s depression, when neoliberalism was at its peak. This explains the
apparent strength of the neoliberal ideological paradigm. However, let us make
the following observations. Firstly, the expansive phase of the current post-
1994 Kondratiev cycle is advancing in its transition towards maturity. This has
unleashed the forces of reform and revolution and hastened the political col-
lapse of the neoliberal forces that remain so ideologically powerful in today’s
world.70 In the six-subphase model, the global crisis that unfolded in late 2008
and lasted until 2010 represents the move into the last expansionary subphase
of the current Kondratiev cycle and its third interval following those of 1994–
2000 and 2003–2008. The 2008–2010 crisis took place during a long expansion
and signalled a much deeper crisis that will probably take hold in the second
half of the current decade. This new crisis could take us back to the bifurca-
tions associated with systemic chaos, such as those seen between 1914 and
1945–1950 when world war catapulted the capitalist world-system to a higher
level and a third of humanity ended up living under socialist regimes until the
1980s. The second and most crucial point to bear in mind is that the balance of
power between systemic and anti-systemic forces now favours the latter far
more than a hundred years ago. This gives socialist and democratic forces the
chance to exert a much stronger influence on the direction of the world econ-
omy and create the conditions for a relatively peaceful transition towards a
new world system as the expansive phase of the new Kondratiev cycle exhausts
itself. This will require the embryonic institutional forms of the new order to
take shape under the old order, so that they are ready to make a qualitative leap
forward as soon as the system enters a generalised crisis.
But it will not be easy for such a scenario to materialise. It will mean first
overcoming the tendencies of the systemic cycle that develop during the sys-
temic chaos between recession and depression and unleash ultrareactionary
70 Political and ideological leadership do not necessarily go together. Of the two, political
leadership in the orthodox sense of representing an ideological paradigm tends to decline
more quickly. This is because the consensus achieved by a hegemonic ideology is sup-
ported not just by orthodox thinking but also by a range of forces that was originally more
heterodox and distinguishable from their hegemonic counterpart. In a conjuncture in
which the hegemonic ideology is declining at an ever-faster rate, the support of heterodox
forces for the dominant ideological paradigm creates a space in which to combine wars of
position with wars of movement in building towards a major political and ideological
tipping point.

forces ready to embark on a new fascist offensive. It is true that as historical

time speeds up systemic cycles lose their capacity for articulation because the
secular trends of capitalism driving them become weaker. But before address-
ing that point, we must first examine the rate of profit’s tendency to fall and the
stage at which that tendency finds itself in the contemporary capitalist
economy.
4 The Tendency of the Rate of Profit to Fall
Marx attached great importance to the law of the tendency of the rate of profit
to fall, describing it in the Grundrisse as the most important law of political
economy. In Capital, too, he stressed its significance. In Marx’s account, the law
is central to the capitalist mode of production because it explains both the
development of capital accumulation and its collapse. This is because the
same factors that drive down the rate of profit can also help expand the mass
of profit. What is this law and how does it support the theory of the downfall of
capitalism?
Referring to the law in Capital, Marx distinguishes between two different
sets of circumstances. In the first, the magnitude of capital does not vary, and
the law acts only to diminish the profit rate. In the second, the magnitude of
capital does change, by means of various mechanisms which allow the mass of
profit to increase at the same time as maintaining the tendency of the profit
rate to fall.
Marx notes that capitalist competition for extraordinary surplus value
causes a continuous rise in the technical and organic composition of capital
that threatens to erode the rate of profit. This happens because machinery is
used to save on labour power by lowering the production costs of a given
commodity whilst increasing labour productivity. As a result, variable capital
decreases relative to fixed and constant capital. This occurs because (a) less
labour power is used in the productive process; (b) the rise in the technical
composition of capital increases the value of machinery; and (c) higher pro-
ductivity augments the value of circulating capital, providing the increased
consumption of raw and auxiliary materials is not accompanied by an equal-
ly intense diffusion of technical advances into the agricultural or mining
sectors.
If the degree of exploitation of labour power remains unchanged, then the
rate of profit will fall insofar as technical progress becomes more generalised,
because the same rate of surplus value applied to a smaller mass of living la-
bour valorises a larger amount of constant capital and dead labour. However,

88 Chapter 2
Marx argues that the same causes which increase the proportion of fixed capi-
tal and raw materials in relation to the mass of employed living labour also
concentrate great masses of workers under the control of individual capitalists
(Marx 1959, 215). Once the technical composition of capital has been deter-
mined at a certain level, this concentration of workers makes it possible to vary
the magnitude of the individual capital and increase the mass of profit on it by
valorising it adequately. The laws of capitalist accumulation, founded on capi-
talist competition and the pursuit of extraordinary profit, combine the ten-
dency for the profit rate to decline with an increase in the mass of profit, which
dialectically supersedes it.
There are, howe v er, limits to how much the rising volume of profit can
outpace the tendency for the profit rate to decline in the absence of counter-
tendencies to the falling rate of profit that operate independently of the ex-
panding numbers of workers. Although capital’s goal is to accumulate surplus
value, the latter can only be realised when regulated by a rate of profit71 that
makes said accumulation proportionate to investment. Otherwise it tends to
be hoarded, which leads to crisis and greater competition among capitals to
destroy part of the accumulated capital.72
71 In the Grundrisse, Marx masterfully locates the rate of profit as the key measure of capital
accumulation, the purpose of which is to expand the rate of surplus value (the ratio of
unpaid labour to paid labour). Essentially, he argues that capital, proceeding from itself as
the active subject in its own process of reproduction, relates to itself as self-expanding
value. That is why “newly produced value” is not measured “by its real measure” – that is,
the ratio of surplus value to necessary labour – but by capital as the supposition of the
newly created value, as if surplus value were “posited and founded” by it. Having differen-
tiated the profit (as newly produced value) from itself (presupposed, self-realising value)
and posited it as a measure of its own valorisation, capital posits the profit in its identity
to itself in order to start the same process again on a wider scale. The product of capital is
profit, and the rate of profit is determined by the ratio of the value of surplus value to the
value of capital (Marx 1973, 672).
72 “In that the expansion or contraction of production are determined by the appropriation
of unpaid labour and the proportion of this unpaid labour to materialised labour in gen-
eral, or, to speak the language of the capitalists, by profit and the proportion of this profit
to the employed capital, thus by a definite rate of profit, rather than the relation of pro-
duction to social requirements, i.e. to the requirements of ‘socially developed human be-
ings’. It is for this reason that the capitalist mode of production meets with barriers at a
certain expanded stage of production (…) It comes to a standstill at a point fixed by the
production and realisation of profit, and not the satisfaction of requirements.
If the rate of profit falls, there follows, on the one hand, an exertion of capital in order
that the individual capitalists, through improved methods, etc., may depress the value of
their individual commodity below the social average value and thereby realise an extra
profit at the prevailing market-price.” (Marx 1959, 253).

In Capital, Marx lists the counteracting tendencies which can fully or part-
ly neutralise the falling rate of profit, even if they cannot stop its slow devel-
oping during the expansive phases of the long cycle or operating as a secular
tendency of capita l ism (Marx 1959, 227–235). These countertendencies in-
clude an increasing rate of labour exploitation, falling wages (closely linked to
relative overpopulation); a reduction in the value of the elements of constant
capital as productivity improves, and the role of foreign trade in cheapening
the elements of constant capital (mainly circulating capital) and means of
subsistence.73
Marx notes that while these countertendencies cannot stop the value of
constant capital from rising faster than variable capital, they can keep the rate
of profit’s tendency to decline in check as long as a potentially explosive con-
tradiction does not arise between the rising rate of surplus value and the mass
of surplus value. The rate of surplus value is boosted across the whole econo-
my by the falling value of labour power and corresponding increase in dead
labour in the form of constant capital. But this conflicts with the number of
workers per given and invariable aliquot part of capital. The increased value of
dead labour reduces the number of working hours available for production.
The reduced number of workers limits the total time spent reproducing labour
power and boosts the rate of surplus value. Keeping the same number of work-
ers prevents such an increase because more hours must be spent reproducing
labour power.74 In the long run, however, the more labour power is saved the
less sustainable capital valorisation becomes. Although capital as a whole
seeks to raise the rate of surplus value, it is really valorised by the mass of sur-
plus value, which in turn depends not just on the rate of surplus value but also
73 Foreign trade and the world market do this in three ways: firstly, through the expansion of
the scale of production; secondly, through the levelling of the general rate of profit be-
tween metropole and colonies, where profit rates are higher because of capital’s lower
organic composition; and lastly, through the sale of goods in backward countries at pro-
duction prices above the value of the goods of the higher composition capitals that have
migrated (Marx 1959, 232–233).
74 This is what leads Marx to assert that absolute surplus value is not a stage in capital ac-
cumulation but a tendency that capital will never abandon, thus limiting any scope for
reducing working hours as productivity increases: “The tendency of capital is, of course,
to link up absolute with relative surplus value; hence greatest stretching of the working day
with greatest number of simultaneous working days, together with reduction of necessary
labour time to the minimum, on one side, and of the number of necessary workers to the
minimum, on the other. This contradictory requirement, whose development will show
itself in different forms as overproduction, over-population etc., asserts itself in the form
of a process in which the contradictory aspects follow closely upon each other in time.”
(Marx 1973: 645).

90 Chapter 2
the number of workers. The mass of surplus value is given by multiplying the
number of workers by the number of surplus hours. Therefore the point comes
when reducing the number of workers, who are the source of extraordinary
surplus value and the increased rate of surplus value, renders the capitalist
system incapable of producing enough value to valorise the capital invested.
But this contradiction between the rate of surplus value and the mass of
surplus value only risks becoming truly explosive for historical capitalism over-
all when the number of productive workers in the modern world system starts
to fall in absolute terms.75 As we show in the next chapter, this happened when
the techno-scientific revolution fanned out worldwide and brought us global-
ization in the 1970s. But before analysing that we should consider the concept
of productive labour, so crucial to Marxist political economy and the issue of
the falling rate of profit tendency.76
For Marx, productive workers have two distinct characteristics. Firstly, they
generate surplus value and valorise capital. This means they take part in com-
modity production by adding use values essential to said production.77 With
the development of collective labour, they can do this even without directly
putting their hand to the object. The second characteristic of productive work-
ers is their subsumption to capital, i.e. the labour process is under capital’s
despotic control. This describes the situation whereby productive workers are
subjected to the decisions of the capitalist command structure. They are em-
ployed by that structure and by the productive forces which end up owning it
and symbolising capital’s collective power.78
75 This can be seen in a pure form by the rise in unemployment and underemployment
rates. One empirically significant feature of this historical process is the decline of pro-
ductive labour as workers are displaced towards low productivity sectors. As competition
depreciates the mass of values these sectors produce, they make only a limited contribu-
tion towards producing the surpluses required to valorise the global mass of accumulated
capital.
76 We do not intend to examine this issue in detail here but just to note some of the points
relevant to our discussion made by Marx in The Process of Production of Capital, Draft
Chapter 6 of Capital (in Marx 1976), and over the three volumes of Capital (1959, 2013).
77 Upkeep and restoration activities should also be included in the production of use values,
as they represent an addition of value essential to physically preserving the commodity.
78 Ruy Mauro Marini rightly argues that the unpublished Chapter 6 of Capital cannot be
given the same weight as the rest of the work because it is a draft which was left out of
Marx’s definitive version. The problem with the chapter is that it treats the capitalist’s
duties as productive labour, whether performed directly or delegated, because they form
part of the collective labour process realised in the product. This appears in the well-
known passage where Marx counts supervisors and even capitalists themselves as pro-
ductive workers: “As the director of the labour process the capitalist performs productive

Marx makes some particularly interesting comments on these points. He

points out that capitalist relations only apply to immaterial production to a
very limited degree, even in the production of commodities that are separated
from the producer. We highlight this proposition because despite being ne-
glected by critics it is absolutely crucial and runs through the whole of Marxian
political economy. Marx makes this point precisely because in his view work-
ers must be subsumed to capital before they can perform productive labour.
Labour can only valorise capital in conditions where the means of production
has first been separated from the worker to become the property of capital and
appear as the symbolic and immaterial representation of its collective power.
The development of the Industrial Revolution helped create such condi-
tions. Industrialization creates a new division of labour, which paves the way
for an exponential growth in rates of surplus value as a result of the widening
chasm between the value of labour and the value of labour power. This gap
labour in the sense that his labour is involved in the total process that is realized in the
product” (Marx 1976: 1048).
Marx’s proposition here contradicts his more general statements on the subject,
which define productive labour as that which produces surplus value and is subsumed to
capital. Marini argues that we must distinguish between capital’s productive functions,
defined by Marx as direction, coordination and supervision, and the other functions of
the labour process, which represent what the working class does. With the development
of capitalist production processes, these functions of capital were allocated to individual
workers whose wage usually incorporates a portion of the surplus value produced by the
workers:
“Without ignoring the economy, a first step towards clarifying what the working class
is would be to go back to the wage labourer’s original role; in other words, whether it in-
volves performing the function of the capitalist, which Marx summarises as direction,
coordination and supervision. If so, then obviously wage labourers cannot be seen as part
of the working class, even if their salary, education, customs and social environment
make it look like they are.” (Marini, 1998).
However, with the socialisation of the labour process this work of direction, social
coordination and supervision is increasingly assigned to key segments of the working
class and its organisations (as with Toyotism) rather than to a specific group of workers
that acts on it. But as long as these workers are ultimately subjugated by a despotic capital
that determines what, where, when and how much to produce, their activity represents
productive labour. It would appear that the tendency for workers to take on capital’s
productive tasks will eventually lead to a crisis of productive labour under capitalism as
capital’s specific functions and the institutional framework regulating surplus value pro-
duction are eliminated. But such a process would require the working class to accumulate
enough power to threaten despotism. Until such a point is reached, the quantity and in-
tensity of the labour transferred to capital will continue to increase. For a perspective that
highlights the rise in labour exploitation see Antunes (1995, 2012).

92 Chapter 2
appears when the value of labour power79 decreases, which happens in two
ways:
a. When labour productivity increases, it cheapens the products workers
must consume in order to reproduce their biological ability to expend
energy;
b. When workers’ duties are simplified by eliminating intellectual labour
and by making manual tasks less complex, their absolute or relative con-
sumption needs in respect of the education, culture and subjectivities
that go into producing labour power decline sharply, fast losing pace with
the increase in productivity. Simplifying the knowledge needed by the
labour force to work normally also helps create a large industrial reserve
army and adds to the downward pressure on wages.
This is why Marx always saw industrialisation as representing both the perfect
basis for capitalism as a mode of production and the limits of its productive
forces. By industrialising, capital develops a warped version of the division of
labour, in which the greater productivity achieved by planning and coordinat-
ing individual work is accompanied by the absolute or relative deskilling of the
labour power of the great mass of workers, who are excluded or marginalised
from the civilisational complexity of capitalist industrialisation.
The progressive elimination of predominantly physical labour puts capital
on a road to nowhere. It cannot replace this kind of labour en masse with
mainly subjective labour because that would imply going in the opposite di-
rection to industrialisation. In other words it would mean raising the value of
labour power and so bringing it closer to the value of labour, since bringing
the labour force up to its full capabilities, as defined in an abstract way by
subjectivity, would require full access to the productive forces unleashed by
humanity.
Marx was therefore right to limit productive labour essentially to physical
work. That is not to say scientific work cannot be subsumed to capital,80 but
79 To understand this it should be made clear that capitalism transforms labour power into
a commodity just like any other, whose price is equal to the cost of its production. This in
turn corresponds to the value of the elements needed to produce or reproduce it, i.e. what
it must consume in terms of food, housing, transport, education, health, recreation, etc.
80 Marx’s concepts of collective labour and the indirectly productive labourer or worker (Capi-
tal Volume 1, Chapter 16) open the way for the subsumption of scientific labour to capital:
“As the co-operative character of the labour-process becomes more and more marked, so,
as a necessary consequence, does our notion of productive labour, and of its agent the
productive labourer, become extended. In order to labour productively, it is no longer
necessary for you to do manual work yourself; enough, if you are an organ of the collective

that it is subsumed only to a limited degree. A merely empirical and historical

perspective cannot fully capture such a contradictory reality. Marx provides
further clarification in the Grundrisse, where he argues that the development
of capital presupposes the development of fixed capital and relative surplus
value. Machinery is introduced in order to save on necessary labour (under-
stood as that which reproduces the value of labour power).81 Its development
leads to a system of automated machines. This system mechanises the labour
process and overpowers workers by reducing their activity to a mere abstrac-
tion. Every detail of their activity is determined and regulated by the power of
the machine, which replaces the worker’s own ability and strength. The saving
of labour power thanks to the machine system transforms productive labour
into an intensive and abstract activity in a movement which ends up with pro-
ductive labour becoming dematerialised and disappearing. But the machine
system requires demographic growth: both of the working population, since
the development of machinery deepens the division of labour and social com-
bination, which emerges as a key productive force; and of the population in
general, as the machine system demands the ever-greater application of sci-
ence to the productive process. A huge contradiction therefore develops. On
the one hand, capital introduces the most advanced kind of machinery (the
automated system) in its pursuit of valueless fixed capital, and eliminates la-
bour power from the productive process, along with its human foundation.82
But on the other hand, the set of productive forces it brings into being are ex-
tremely anthropocentric. This contradiction exposes a conflict between two
interconnected but opposing logics: that of capital, which measures wealth ac-
cording to the value of labour power and necessary labour; and that of science-
centred productive forces which create wealth on the basis of surplus labour
and above all free time, i.e. wealth creation based on people free to choose
their way of life and the activities they perform in order to produce it:
labourer, and perform one of its subordinate functions” (Marx 1974, 476). But in the Grun-
drisse Marx is far more explicit on this issue. Sedi Hirano shows that he addresses the
subsumption of scientific labour to capital in his analysis of the work in “Política e econo-
mia como formas de dominação: o trabalho intelectual em Marx”(Hirano 2001).
81 The meaning of value of labour power is assumed in the Grundrisse and then fleshed out
in Capital.
82 “The kind that would cost nothing, but merely needed to be appropriated by capital,
would have the maximum value for capital. It follows from the simple proposition that
machinery is most valuable for capital when its value =0, that every reduction of its cost
is a gain for capital. […] Its use value is precisely that it increases the productive power of
labour, decreases necessary labour, and increases relative surplus labour and hence sur-
plus value.” (Marx 1973, 766).

94 Chapter 2
The exchange of living labour for objectified labour – i.e. the positing of
social labour in the form of the contradiction of capital and wage labour –
is the ultimate development of the value-relation and of production rest-
ing on value. Its presupposition is – and remains – the mass of direct
labour time, the quantity of labour employed, as the determinant factor
in the production of wealth. But to the degree that large industry devel-
ops, the creation of real wealth comes to depend less on labour time and
on the amount of labour employed than on the power of the agencies set
in motion during labour time, whose ‘powerful effectiveness’ is itself in
turn out of all proportion to the direct labour time spent on their produc-
tion, but depends rather on the general state of science and on the prog-
ress of technology, or the application of this science to production. […]
Capital itself is the moving contradiction, [in] that it presses to reduce
labour time to a minimum, while it posits labour time, on the other side,
as sole measure and source of wealth. Hence it diminishes labour time in
the necessary form so as to increase it in the superfluous form; hence
posits the superfluous in growing measure as a condition – question of
life or death – for the necessary. On the one side, then, it calls to life all the
powers of science and of nature, as of social combination and of social
intercourse, in order to make the creation of wealth independent (rela-
tively) of the labour time employed on it. On the other side, it wants to
use labour time as the measuring rod for the giant social forces thereby
created, and to confine them within the limits required to maintain the
already created value as value. Forces of production and social relations –
two different sides of the development of the social individual – appear
to capital as mere means, and are merely means for it to produce on its
limited foundation.
marx 1973, 704–706
Here Marx is posing a far-reaching civilisational question. He is effectively say-

ing that this new foundation of the productive forces signals the need to forge
a new kind of person – the social individual. The social individual develops
his/her individuality by accessing the material and symbolic products created
by humanity. Productivity will then come to depend on that individuality and
its cognitive values. This will constitute a new model relationship between
man and nature no longer dominated by need. Man will emerge as the main
productive force and interact freely with nature. Surpluses will replace short-
ages, and no longer will the economy determine, in the last instance, how life
is produced. A new material civilisation will be created based on the symbolic,
on cognitive values, on socialisation, interaction, freedom and immateriality.

Unfettered by physical or geographical limits, it will deserve to be called a plan-

etary civilisation (Santos 1988, 1989, 1992a, 1994c, 1995b).
Capitalism is utterly unsuited to overseeing a successful transition to the
social individual. This is the case whether we are talking about its economic,
social, political or ideological conditions. We saw that at the economic level
the social individual will become the source of productivity, requiring an in-
crease in the value of labour power compared to the value of labour which
would endanger surplus value. On the social plane, the new individual will re-
quire free time and fully democratised private and public institutions in order
to play an active role in running society. This clashes with capitalism’s limited
ability to shorten the working day and overhaul the despotic foundations upon
which it organises the labour process and the State. And at the ideological lev-
el, the new individual prioritises cognitive values over material consumption,
and freedom, equality, solidarity and peace over coercion, inequality and com-
petition.83 This poses a real threat to commodity realisation84 and the sym-
bolic meanings which promote capitalist competition.
For Marx, capitalism simply cannot adapt to the new foundations of the
productive forces:
In this transformation, it is neither the direct human labour he himself

performs, nor the time during which he works, but rather the appropria-
tion of his own general productive power, his understanding of nature
and his mastery over it by virtue of his presence as a social body – it is, in
a word, the development of the social individual which appears as the
great foundation-stone of production and of wealth. The theft of alien la-
bour time, on which the present wealth is based, appears a miserable foun-
dation in face of this new one, created by large-scale industry itself. As
soon as labour in the direct form has ceased to be the great well-spring of
wealth, labour time ceases and must cease to be its measure, and hence
exchange value [must cease to be the measure] of use value. The surplus
labour of the mass has ceased to be the condition for the development of
general wealth, just as the non-labour of the few, for the development of
83 In probing the meaning of the French Revolution, Immanuel Wallerstein notes that it was
the modern world system’s first ideologically antisystemic force, but that the slogan of
“liberty, equality, fraternity” never became a substantive reality under capitalism. See
Wallerstein (2011a, 1995a, 1999a, 1999b).
84 The restricted consumption of material goods limits the decreasing rate of utilisation of
physical resources described by István Mészáros in Beyond Capital (2002) and which con-
cerns the underutilisation of resources to deal with the pressures of capitalist competi-
tion and its drive to sell commodities.

96 Chapter 2
the general powers of the human head. With that, production based on
exchange value breaks down, and the direct, material production process
is stripped of the form of penury and antithesis. The free development of
individualities, and hence not the reduction of necessary labour time so
as to posit surplus labour, but rather the general reduction of the neces-
sary labour of society to a minimum, which then corresponds to the artis-
tic, scientific etc. development of the individuals in the time set free, and
with the means created, for all of them.
marx 1973 : 705–706
Marx’s theory of capitalist collapse rests not only on economic criteria but also
articulates other aspects of the production of human existence. The clearest
evidence for the falling rate of profit lies in the contradictions between the re-
lations of production and the productive forces, as manifested by capital’s in-
ability to fully incorporate the scientific and technological revolution.85 This
empirical fact has been clearly visible ever since the scientific-technological
revolution went worldwide in the mid-1970s, consolidating globalization. Per-
sistently high unemployment – even during the expansive phase of the new
Kondratiev cycle – and capital’s dogged resistance to shortening the working
day in the face of the absolute decline in productive labour both indicate how
hard it is for capital to reforge labour relations on a foundation of skilled and
intensive labour, education, and democratic relationships.
In the next chapter we tackle this issue from a broader thematic vantage
point, asking how globalization has acted on the modern world system and
historical capitalism in such a way as to bring about their crisis and final super-
session in the interval between 2015/2020 and 2045/2050.
85 The theory of the techno-scientific revolution developed by Radovan Richta in the late
1960s, discussed in more detail in the next chapter, is broadly supported by Marx’s theory
of the falling rate of profit. That is why we examine it in light of the crisis of the modern
world system.

Chapter 3
Globalization and the Crisis of the Modern World

System
1 Globalization and the Techno-scientific Revolution
We saw earlier that as a concept, globalization has yet to receive the treatment
it deserves. Rarely is it conceived of dialectically, as a process that both articu-
lates and confronts radically different productive structures and forces. Instead,
it is usually understood it as a process that has already been or is becoming
institutionalised. The most adventurous approaches portray globalization as a
new era dominated by capital, in which a global productive system driven by
financial capital is being consolidated under the guidance of networked busi-
nesses or capital in general. Others define it as the advanced stage in the long-
term development of the world system. It has also been seen as a new stage
that will be led by international regimes anchored in the shared hegemony of
the world-economy’s most powerful states. Alternatively, it is understood as
the globalization of financial capital as it submits the world economy to a re-
gime of permanent depression. But these approaches only account for mo-
ments or certain potentialities of the process and fail to reconstruct it as a
practical-theoretical totality.
In this work we understand globalization as a revolutionary process that
brings the capitalist mode of production and its legal, political and ideological
superstructure up against a new structure of productive forces that it cannot
fully absorb. In this sense globalization designates a civilisational transition
that exhausts the limits of capitalist existence but requires the foundations of
a planetary civilization to be built in order to complete its course.
Globalization picked up pace thanks to the worldwide diffusion of the
techno-scientific revolution. The techno-scientific revolution was a concept
developed in Eastern Europe and the Soviet Union. Its most paradigmatic ex-
pression was Civilization at the Crossroads (1969) by the Czech writer Radovan
Richta – a work with echoes of the Prague Spring and a socio-political envi-
ronment that encouraged people to question the bureaucratic restrictions on
socialist societies. Richta systematised Marx’s view of capitalism as a mode of
production whose productive forces have their basis in the Industrial Revolu-
tion. Theotonio Dos Santos did much to disseminate and develop Richta’s

98 Chapter 3
perspective with a series of works examining the techno-scientific revolution

and its advance in contemporary capitalism and the world economy.1
Richta describes two different concepts: the structure and the dynamic of
the productive forces. He argues that the productive forces are made up of the
whole range of forces that produce human life and as such are impregnated
with social meanings. He starts out from Marx’s position, passed over in the
official Soviet literature, that the productive forces are built on collective la-
bour. They therefore consist not only of physical factors – the instruments of
production, the object of labour, the workforce and auxiliary elements – but
also the social combination, values and subjective factors that constitute and
organise collective labour. The greater the social importance of the subjective
elements to the organisation of collective labour2 the more developed the pro-
ductive forces.
The structure of the productive forces is made up of both the physical and
subjective factors that go into collective labour. These elements are organised
around the relations of production, which include property relations, work re-
lations, distribution, exchange and consumption. The dynamic of the produc-
tive forces refers to how their structure expands by generating an economic
surplus. Different components of the productive forces take the lead in creat-
ing this surplus, depending on the mode of production. In the capitalist mode
of production, the surplus expands thanks to the combination of machinery
and labour power at the heart of large-scale industry. The Industrial Revolu-
tion fuelled huge waves of migration from the countryside to the urban cen-
tres, which concentrated their populations in large work units. The mass of
workers linked to industry grew, and until the mid-20th century this was the
yardstick used for measuring a state’s development. As we saw earlier, the
machine system causes the relative deskilling of the workforce, with labour
becoming increasingly abstract and intensive. Science is incorporated into
production but without revolutionising the foundations of the division of la-
bour, constituted by collective labour. The latter is divided into a large mass of
workers who expend their labouring power above all physically, and a small
contingent of managers, engineers and technologists who coordinate the tech-
nical and financial expansion of the machine system.
1 Theotonio Dos Santos’s work on the techno-scientific revolution (1977b, 1979b, 1983, 1987,
1990, 1994c, 1995b) also led him to consider the role of the productive forces in the world to-
day in theoretical-methodological terms. See Forças produtivas e relações de produção (1984).
2 The English translation of Richta (1969) uses the term “aggregate worker” in this regard –
Trans.

Globalization and the Crisis of the Modern World System 99
Richta points out that despite progressively incorporating technology and

technical progress during the Industrial Revolution, the capitalist mode of pro-
duction remains an extensive economic form. This is because economic
growth relies on an absolute and relative increase in the mass of physical la-
bour employed in industry. Science continues to play second fiddle in the pro-
duction process. Production is governed by the mechanical principle, whose
most advanced application is the assembly line, and the way labour handles its
object, is still governed by quantitative principles, as with cutting and assem-
bly. This is despite the elaboration of new materials such as steel.
The techno-scientific revolution commences once science becomes the
predominant form of economic growth. This happens when the production of
the economic surplus no longer depends on expanding the mass of physical
labour.3 From that point on science becomes the leading component of the
productive forces and governs their dynamic. The automatic principle replaces
the mechanical principle in managing production. The expenditure of collec-
tive labour becomes determined by immaterial and symbolic factors, and the
subjective and voluntary dimensions of the productive forces dominate their
physical and material aspects. But in its first stage this process is limited to
generating economic growth. That is, it does not structurally affect society’s
organisational foundations, as constituted by the relations of production.
These are still controlled by capital.
The capitalist mode of production is currently at an extremely decadent
stage, and social tensions are mounting as a result. At the heart of this deca-
dence lies the fact that the relations of production come to depend more for
their survival on property relations as opposed to labour relations. Unable to
widely replace physical labour with subjective labour, capital looks to its prop-
erty relations as the means of retaining control over the relations of produc-
tion. Thus a profound contradiction arises between the productive forces and
relations of production whose dynamism is chiefly rooted in labour relations.
Capital goes from being a progressive force in the world-economy to a fetter on
its development. But it cannot ignore the new productive forces. Based as it is
on competition and the pursuit of extraordinary surplus value, it is compelled
to reduce production costs by incorporating technological progress. Historical
3 We saw earlier that this is exactly the situation Marx describes in the Grundrisse when he
remarks that science becomes a productive force that cannot be measured by the labour re-
quired to produce it. This contradiction between science and value is what allows him to
claim for science the same condition of gratuitousness offered by nature. It is key to under-
standing the concept of social returns of innovation in the contemporary world economy,
which shows how the trend towards diffusion outweighs the innovator’s capacity for private
appropriation.

100 Chapter 3
capitalism enters a new stage of seriously deviating from the law of value be-
cause, increasingly, appropriation has become a condition of surplus value
production, reflecting the axial shift in the relations of production towards
property relations. As we explain in the next section, the current crisis stage of
the modern world system and historical capitalism will probably rely on inten-
sified inter-capitalist competition and ever closer relations with the State to
enable the transfer of enough surplus value to valorise innovative capital. As a
result, accumulation is accompanied by a massive destruction of capitals that
slashes potential global economic growth, ratchets up unemployment, and
creates the conditions for the prices of labour power to fall below its value, in-
corporating skilled labour into the productive process – albeit to a limited
extent.
Richta locates the origins of the techno-scientific revolution in the conjunc-
ture lasting between the 1940s and 1960s but limits it to the central countries.
We would argue that in the 1970s/1980s it extended across the whole of the
global economy. Using the indicators used by the Groningen Growth and De-
velopment Center,4 and drawing heavily on Angus Maddison’s methodology,
we find that from those years onwards both the absolute and relative numbers
of workers employed in manufacturing began falling significantly.5
During the 1970s and 1980s the techno-scientific revolution generalised the
microelectronic paradigm, laying the material foundations for globalization.
The automatic principle took root in the world-economy and work moved
4 Available at <http://www.maddisonproject.net/>.
5 Between 1950 and 1970, the number of workers in manufacturing in the United States rose
from 79.6 to 100.4; in Great Britain from 146 to 161.3; in West Germany from 74.9 to 113.3; in
France from 107.9 to 120.8; in the Netherlands from 106.3 to 125.1; in Japan from 46.3 (1953) to
94.7; in Canada from 68.8 to 91.7, and in Spain from 59.3 to 101.1. From that point on the index
experienced a downward inflexion or else grew at a far slower pace, indicating either an ab-
solute or relative reduction of workers in manufacturing. Thus between 1970 and 2000 the
index fell to 96.4 in the United States; 82.6 in Great Britain; 79 in West Germany; 86.2 in
France; 93.9 in the Netherlands, and 88.9 in Japan. It grew but at a slower pace in Canada and
Spain, reaching 109.3 and 108.1 respectively.
Growth in the number of workers has also slowed considerably in semi-peripheral and
peripheral countries. If we take 1990 as the year when the value of the index stood at 100, we
find that in Brazil its value rose from 24.6 in 1950 to 82.2 in 1998; in China from 13.8 in 1952
to 95.1 in 1999; in Korea from 12.4 in 1963 to 81.6 in 1999; in India from 51.7 in 1960 to
100.1 in 1998, and in Taiwan from 19.4 in 1963 to 100.1 in 1998. In Mexico the index con-
tinued along an accelerated trajectory that rose from 27 in 1950 to 120.5 in 1999, although
it weakened in the first half of the 1990s. The Mexican case reflects the country’s ongoing
integration into the US system of production and the importance of the maquiladoras in re-
ducing the cost of producing US goods. Data available at http://www.rug.nl/research/ggdc/
data/icop-industrial-database-1987-benchmark.

away from production. The material conditions for coordination on a global

scale were created as communication technologies managed to mass-produce
information in real time and eliminate distances in its circulation. But as we
noted earlier, these conditions conflict with capitalism’s economic, legal and
political foundations.
Capital continues to be an economic form rooted in competition and dedi-
cated to the generalised production of commodities. It subordinates planning
to private interests which limit coordination on a global scale. Its incorpora-
tion of the microelectronic paradigm has led, not to a worldwide system of
production, the domination of capital in general or supranational forms of ad-
ministration, but to a higher form of monopolistic competition that represents
an intensified form of global competition. In this scenario, multinational or
‘global’ companies continue to concentrate their strategic assets6 in national
bases, whilst internationally globally coordinated administration remains a
distant prospect as long as bodies like the UN and its economic organisations
ensure that central countries retain most of their sovereign privileges.
As argued by Marx, capital-in-general is not a concrete reality: it only exists
because it corresponds to the abstraction represented by the average of many
capitals. Nonetheless, its relevance as a concept lies not in that concrete cor-
respondence but in the abstraction that sets the general conditions under
which capital is valorised. The more capital incorporates technology and sci-
ence into production the more it must promote competition, because the cri-
sis of surplus value creation impels capital to find ways to appropriate it.
2 The Political Economy of Globalization
Globalization transforms the political economy of capital. It increases scales of

production and creates a technically integrated division of labour that begins
functioning at the level of the world-economy’s international market. Informa-
tion technology makes it possible to globally integrate the administration of
individual enterprises, as the production of dispersed units no longer has to be
6 Despite the growing number of strategic agreements between firms from the world econo-
my’s financial powerhouses, US companies, which lead the world in research and develop-
ment expenditure, made just 11% of their R&D investments abroad. See National Science
Foundation (2002, 4–92).
According to unctad (2005), companies have only internationalised R&D to a limited
degree, with expenditure abroad in this area rising from 10% to 16% of total investments
between 1993 and 2002. US firms register below-average rates of internationalisation, with
just 13% of their said expenditure going abroad.

102 Chapter 3
segmented into different products or markets but can be coordinated so as to

make all the parts and components of one product directed at the world mar-
ket. As production costs rise, companies must control big slices of the world
market if they are to make the most of their investments. Production is made
extremely flexible by the ability to process and receive information in real
time, and this ability is boosted by new regimes of labour power regulation
that allow workers greater freedom to make decisions and use their own initia-
tive, thus appropriating their intellectual capabilities.
In this context the development of the productive forces is articulated with
the pendulum-like movement of the systemic cycle. As we saw earlier, the pen-
dulum swings back in times of hegemonic crisis, and during the US crisis it has
swung back towards cosmopolitanism and imperialism. Capitalism uses neo-
liberalism, which reworks the liberal principles of competition, to organise the
new international division of labour and its productive bases in the
world-economy.
This new division of labour recreates the relationship between core, semi-
periphery and periphery. The central countries seek to specialise in the pro-
duction of high value-added parts and components and in research and
development to generate the knowledge needed for technological innovation.
There is a nascent but global tendency for core countries to decentralise their
material productive assets, which seriously affects peripheral regions. Large
corporations now coordinate production globally, giving rise to so-called glob-
al enterprises (Chesnais 1996), or technobergs, as René Dreifuss described
them (1996, 1999). The way dependent countries are articulated within the
international division of labour means that their production is increasingly
geared towards the world market. Through integrated planning, global enter-
prises combine superexploited labour in such countries with ever more ad-
vanced technology. As a result, strictly national bourgeoisies, who create most
of the jobs in the world-economy, suffer from falling profit rates and gradually
disappear, leading to high unemployment in the world economy and the
spread of super-exploitation to the central countries.7
7 In “Proceso y tendencias de la globalización capitalista” (1996), Ruy Mauro Marini argues that
the globalization of the world economy has extended super-exploitation – a form of repro-
duction of labour power typical of dependent countries – to the global economy as a whole.
In Chapter 6 we examine this more closely from a theoretical standpoint. It is hard to empiri-
cally verify such trends across the whole of the global economy. Wage indicators are limited
in their accuracy as they tend to include the wages of both workers and managers (oecd
2002). In the case of the United States, however, the Bureau of Labor Statistics indicators re-
ported in the Economic Report of the President are conceptually more reliable as they reflect
the wages of workers without supervisory or management responsibilities. This data backs

This, then, is how production is organised under capitalism as globalization

proceeds apace. But capitalist development is deeply contradictory. Globaliza-
tion plunges capitalist political economy into a structural crisis. But it is impor-
tant not to confuse this crisis with a permanent depression. For, while it does
affect systemic cycles and Kondratiev cycles, it also becomes integrated with
them and is influenced by their oscillations.8 Its main features are the crises of
surplus value production, realization and appropriation. These features are
mutually conditioning, but for analytical reasons we shall examine them
separately.
2.1 The Crisis of Surplus Value Production

There are two main reasons for this crisis: the decline in productive labour and
the diminishing rate of expansion of surplus value. Productive labour’s decline
is expressed by the diminishing number of workers involved in production.
The rising number of jobs in science, culture and entertainment – activities
up our thesis. The US is a country whose per capita gdp growth between 1973 and 2001 was
higher in the United States than in the twelve leading European countries. It can therefore be
cited as a prime example of super-exploitation spreading to central countries.
Based on the dollar’s value in 1982, hourly earnings in the US peaked in 1972 at US$9.26.
After that they sank to their lowest level in 1993, when they fell to US$7.78. The economic
recovery failed to fully restore wage levels, and fifteen years of growth only brought hourly
pay up to US$8.90 (2009) – lower than in 1972. If we look at weekly wage packets the out-
come is even worse. Weekly earnings peaked in 1972 at US$341.80. They then declined sig-
nificantly, falling as low as US$266.40 in 1992. The new Kondratiev cycle in the US economy
then raised wages to US$294.30 in 2009, but this was still less than in 1964. Super-exploita-
tion is clearly present even before we factor in other indicators such as the workforce’s in-
creased years of schooling or the intensification of work over the period in question. See
Council of Economic Advisers (2010b).
For Europe and the oecd, one indicator pointing in a similar direction is the share of
wages as a part of gdp, although its very broad definition of wages makes it an insufficient
indicator by itself. Between 1980 and 1982, wages corresponded to 54.7% of gdp in the euro
area, falling to 48.7% by 2001. This collapse was especially notable in France, where earnings
fell from 52.9% to 42.4% (oecd 2002, 229).
8 Here we differ in our understanding from Robert Kurz (1992), for whom capitalism is already
in decline and depression owing to the irreversible tendency of the rate of profit to fall. Kurz’s
analysis is based on the fact that productive labour is in absolute decline, thus reducing the
amount of surplus value produced, which is then insufficient for valorising capital. This argu-
ment has the merit of pinpointing one of the biggest threats to historical capitalism: the de-
cline of productive labour. But he does not work into his account the countertendencies
capital has used to offset this decline by generalising super-exploitation and tying it to an
increase in the value of labour power, thereby expanding State intervention and integrating
the old Soviet bloc, Eastern Europe and China into the world market. These countertenden-
cies have allowed a new upswing period to develop in the world economy, but they will not
be enough to respond to the diffusion of automation in the decade ahead.

104 Chapter 3
which lie at the heart of Marx’s vision of the new stage of organisation of the
productive forces and the constitution of the social individual, cannot fully
compensate for this decline. Since the late 1970s this situation has been re-
flected in the world-economy’s high rates of unemployment and underem-
ployment (precarious work concentrated in low productivity sectors), and in
the low rate of increase in skilled jobs.9 But the crisis of surplus value produc-
tion is also accentuated by another law discovered by Marx and described in
the Grundrisse and Capital: the lower the proportion of paid labour making up
the working day, the more modest the increase in the rate of surplus value. This
is how capitalist development sows the seeds of its own collapse. The valorisa-
tion of capital is based on the falling value of labour power, Therefore as labour
power shrinks as a proportion of the working day, the lower the rate of capital
valorisation relative to the increase in the technical composition. This occurs
because productivity increases act upon an ever-smaller denominator of the
fraction making up the rate of surplus value. If such a law worked in favour of
accumulation during the early stages of capitalist development, it has proved
a major obstacle to its expansion in its twilight years.10 It becomes even more
contradictory if we consider that capital moves around in pursuit of extraordi-
nary surplus value, which redistributes the global mass of surplus value to the
benefit of an individual capital but without that mass increasing.
The fight over extraordinary profit turns ferocious during this conjuncture
and demands a new institutional architecture. Individual capital confronts
this situation by increasing the mass of surplus value added over the working
day. It does this in two ways. On the one hand, it increases skill levels, work
intensity and the mass of collective labour, as well as encouraging new forms
of social combination and the concentrated monopoly power to assimilate
9 In 1998 researchers represented 0.6% of the workforce as a whole across the oecd, with
an annual growth rate of 3.9% (oecd 1998, 2001).
10 We can illustrate these trends through two hypothetical situations: A and B. In situation
A, a ten-hour working day is split into two hours producing surplus value and eight hours
reproducing labour power, and an increase in the technical composition of capital dou-
bles productivity over a given period of time (x). During that period, the proportion of the
working day devoted to surplus value production triples from two to six hours, rising at a
faster rate than the increase in the technical composition. In situation B the reverse hap-
pens: the ten-hour workday is divided into eight hours of surplus value production and
two hours of reproduction (of labour power). Here, if productivity were to double, the
part of the workday devoted to surplus value production would increase to nine hours, a
12% rise, while the technical composition would increase by 100%, forcing an increase in
the organic composition of the capital that would make it impossible to maintain the
same rate of profit.

them. On the other, it resists pressure to reduce the working day. That option,
however, is inadequate and limited.
As seen, workers formed by the techno-scientific revolution should resem-
ble the social individual, just as the logic of the productive forces dictates.
Hence the greater their productivity and reproduction costs, the more they
should partake of the wealth created. Increasingly, the value of labour power
includes access to symbolic goods, dense in immateriality and subjectivity, and
is determined by historical and moral factors. If supply and demand were
evenly matched, this situation would lead to a progressive decline in the rate of
profit. To avoid that outcome, capital restricts the demand for labour power,
and in so doing generalises super-exploitation in the world economy.11 The
forms of social combination that improve skills and intensify work limit its
generalisation, and their diffusion tends to undermine the profit rate. Benja-
min Coriat (1991) thought that Toyotism would replace Fordism as a means of
regulating labour power, but in practice it encountered serious limits on its
ability to expand quite as successfully.
2.2 The Crisis of Labour Power Regulation Models

For Coriat, Toyotism is based on certain core principles underpinned by a
set of institutional commitments. These principles are just-in-time and self-
activated production. Just-in-time means production is demand-driven and is
characterised by zero stocks, rapid delivery and guaranteed product quality.
Whereas with Fordist planning information flows from the start to the end of
the productive chain, in just-in-time production it flows in the opposite direc-
tion. Self-activation means putting the production process tasks of quality
control, programming, diagnosis, repair and maintenance in the hands of
those directly responsible. Without doing this, there is no guarantee of quality,
and production cannot be swiftly adapted to qualitative and quantitative
variations in demand. The direct operators acquire a high degree of decision-
making autonomy, which means they can stop the assembly line and inter-
vene in its operation in order to meet just-in-time targets. They should be
able not only to operate machines but also improve products and processes
through innovation, adapt products to changing demand, control their quali-
ty, reduce stocks and waste, and adjust production so as to save on resources
(Coriat 1991, Womack 1992).
11 The generalised super-exploitation of labour throughout the world capitalist economy is

a key element in the crisis of the capitalist mode of production whose development is
grounded in relative surplus value.

106 Chapter 3
Toyotism augments both the intensity of labour and the mass of value each
worker contributes. It consumes not just their physical strength but, increas-
ingly, their intelligence, initiative and creativity. In order to encourage this
tendency work must be reorganised around new business planning and man-

agement principles. In Fordism, planning and management were dominated

by hierarchies and imposed ex ante. But the communicational link-up between
production and demand enabled by new technology breaks down the hierar-
chical division between planning and execution and influences every aspect of
business. Under Toyotism, planning no longer takes place prior to execution,
an activity dominated by bureaucrats, but takes place within the very same
time frame, in a way that redefines the very concept and nature of manage-
ment. A systemic approach is developed. In this approach, productivity is mea-
sured in terms of the system as a whole rather than individual workers in their
separate roles, and the notion of shared time replaces that of time allotted to
or imposed on workers. Workers cease to be specialists and take on increas-
ingly subjective tasks as part of their manual work. Business productivity itself
is co-managed among the different layers of workers within the corporation.
Crucially, workers’ subjectivity must be mobilised. This means creating
democratic forms of consensus-based management, because once valorisa-
tion comes to rely on the subjective expenditure of labour power, then the
control and physical coercion of bodies – carried out by scientific manage-
ment or the conveyor belt – cease to be functional for guaranteeing capital
valorisation. Capital and labour therefore need to reach a series of compro-
mises in order to develop this productivity paradigm. In the early 1990s Coriat
noticed that in Japan, where the Toyotist regime was most fully implemented,
its democratic structure was based on clearly defined institutional innovations
in the shape of lifetime employment, a seniority-based wage structure, and
early retirement.
Lifetime employment is a key component of Toyotism for three reasons.
Firstly, if the worker becomes a differentiated asset, trained by the company
for as long as their labour power endures, then that firm needs to keep them on
to ensure that its competitors are not the ones who reap the rewards of its in-
vestment. Secondly, workers will hardly sign up to a management approach
that intensively introduces innovations and job cuts without assurances that
they will redefine their jobs rather than eliminate them altogether. Finally,
high employee turnover is increasingly unproductive – whereas under F ordism
deskilling and specialisation meant newly hired workers were quick to attain
the productivity levels of those they replaced, under Toyotism such a system
would inflict real damage, because there are no limits to how skilled workers
can become.

Under Toyotism employees are retained via consent rather than coercion.
The seniority-based wage system is the best way to achieve this because it cre-
ates an expectation among workers that they will stay with the same firm.
Workers who leave are penalised in the form of a large wage cut because of the
years of service lost when starting afresh elsewhere. Lifetime employment and
seniority-based wages become the basis of internal labour markets, which en-
sure continual progression up a wage and skills ladder. Seniority-based salaries
tend therefore to equate to age-based salaries. This fits with training structures
that enable workers to pick up skills and qualifications over time, either in the
workplace itself or through formal education. Finally, early retirement at 55–
60 years old facilitates promotions, fosters creativity and prevents individuals
from monopolising certain roles within organisations.
Nonetheless, there are limits to this democratised management structure. It
does not for example embrace financial administration within companies,
where strategic decision-making is concentrated. Coriat admits there is a lack
of wider participation in planning what to invest in and where, and what to
produce. Furthermore, Toyotism’s reach is limited – even in Japan it covered
just 30% of the labour force by the early 1990s. In Japanese Capitalism in Crisis
(Boyer and Yamada 2000), Coriat and other members of the Parisian regulation
school12 accept that the chances of Toyotism becoming the dominant mode of
management in the current stage of capitalism are limited. They argue that the
Japanese crisis is one of a mode of ‘régulation’ and cannot be resolved through
Keynesian anti-cyclical policies but by forging a new accumulation regime
that combines Toyotism with other forms of market-based labour regulation.13
They therefore posit a third way between a Toyotism founded on institutional
and social compromises and a neoliberalism based on market relationships:
12 The leading figures among the Parisian regulationists include Michael Aglietta, Robert
Boyer and Benjamin Coriat. Another group came out of Grenoble, led by Gerard de
Bernis.
13 As Boyer and Yamada put it in their conclusions: “Basically, a régulation mode enters into
crisis when existing institutional forms put forward economic adjustments that threaten
their stability and viability. This is precisely the process which the Japanese economy has
been undergoing since the early 1990s (…) The jwln (Japanese Wage-Labour Nexus –
C.E.M.] is unable to deliver a dynamic recovery of the profitability of the firms, nor does
it seem viable in the long term to an increasing number of firms and wage earners. The
discussions of the ‘end of life-time employment,’ the incompatibility of seniority wage
with a slow-growth economy or the inability of large corporations to nurture the talents
required by the information-led production paradigm, point out these limitations” (2000,
197–199).

108 Chapter 3
Whereas the conventional debate is about the opposition between a spe-

cific Japanese trajectory and the adoption of typical market-led institu-
tions, a third way is much more likely and deserves some analysis.
boyer and yamada 2000, 207
In tackling the reasons underlying the crisis of Toyotism, the regulationists

seek to preserve wage-labour relations without seeing them as the source of
the crisis. They argue that these relations are called into question because the
crisis of the régulation mode is projected onto them, whereas the crisis itself is
determined by the decline of the Toyotist financial regime and the Japanese
system of innovation:
This evidence leads to the conclusion that contemporary Japanese econ-

omy faces a crisis of the post-Second World War régulation. The strains
upon the wln [wage labour nexus – C.E.M.] are not its cause but the
consequence of this crisis.
boyer and juillard 2000, 137
The regulationists make the crisis of the financial regime the main focus of
their attention. Their analysis of the Toyotist production regime looks not only
at how the labour process is regulated but also at the regime’s financial under-
pinnings. They show that in relying on full employment, skills development,
and internal labour markets, Japanese capitalism prioritised planning and a
long-term approach. In order to institutionalise labour relations it had to radi-
cally reappraise the criteria traditionally applied to financial resources, which
were based on market practices and the competition to achieve immediate
results. A financing system was therefore developed in Japan whereby banks
lent to companies at artificially low interest rates in exchange for sharehold-
ings, which gave them a quota of investment profits. This created relationships
based on mutual trust. Firms were free to develop projects, but the banks mon-
itored their implementation and results. When such projects failed, the banks
would intervene to save enterprises with measures aimed at restoring them to
good operating health. That said, private banks could ultimately rely on a gov-
ernment safety net in the shape of anti-competition laws, as well as expansive
monetary policies, low interest rates and state help with risk management.
The regulationists argue that the disintegration of this financial regime be-
gan in the late 1970s and continued into the next two decades. This was a result
of both internal and external factors. Internally, slower economic growth in
the mid-seventies deepened the public deficit. The government responded by
issuing bonds, but this created a secondary market, which undermined the

intermediary financial role played by the major banks. Businesses were happy
to see this happen because of the high amounts that banks charged them in
return for long-term financial support for their projects. At a time of diminish-
ing long-term growth prospects, firms had started to view this support more as
an expense than a means of leverage. Externally, the US pressured into Japan
into deregulating its financial market and capital accounts. This all led to the
yen’s appreciation, a less competitive Japan, and falling profit rates (Nabeshi-
ma 2000, 104–116; Coriat, Geoffron, and Rubinstein 2000, 177–178).
The financial regime’s crisis triggered the decline of a Japanese system of
innovation better suited to catching up than to retaining technological leader-
ship. The Parisian regulationists revisited their theories to emphasise the obso-
lescence of a system that back in the early 1990s some, notably Coriat, had seen
as paradigmatic. They point to underinvestment in basic research, over-
reliance on private sector funding for R&D, an overemphasis on product devel-
opment and differentiation at the expense of lower production costs, and the
patent system’s failure to fully protect technological inventions and innova-
tions. In terms of the wage-labour relation, they note that less weight is now
attached to criteria such as lifetime employment and the seniority system and
more to personal performance and individualised salaries. This is justified by
the increase in average employee age and the need to incentivise individual
creativity (Coriat, Geoffron, and Rubinstein 2000, 175–191).
The regulationists make a key contribution to our understanding of the Jap-
anese crisis. But their analysis ignores the mode of régulation’s wage-labour
nexus with little by way of explanation. We would argue that a more careful
assessment of the Japanese crisis would identify its core determinants as being
wage-labour relations (on the domestic front), and the crisis of US hegemony
and the particular form it assumed in the mid-1980s (globally).
We saw earlier that Japan developed during the 1950s and 1960s partly by
invitation. It belonged to a strategically important region in Cold War terms
and experienced a ‘progressive’ US occupation, which promoted major agrari-
an reform and the formation of an industrialising local elite. This elite organ-
ised and negotiated a regional alliance in exchange for development being
imposed with conditions that went beyond what the US had planned for.
Japan protected its domestic industry from being penetrated by foreign capital,
built up an export-based economy by undervaluing the yen and earned foreign
exchange by hosting a US troop presence. The destruction of trade union op-
position in the 1950s, a development-friendly context and the precarious mate-
rial conditions of the working class helped the Japanese ruling classes achieve
high rates of profit. It was in this context of international support for Japan’s
efforts to restore its relative power in the world-economy, combined with

110 Chapter 3
odest employee wage demands, that Toyotism took root. But as it was further
m
developed and perfected, so these initial conditions of compromise and low
wage demands broke down.
The regulationists’ own indicators illustrate the relationship between the
rate of profit and the relative growth of the wage mass as a share of output.14
The profit rate peaked between 1965 and 1969, rising from an index of 16.9% to
25.3%. During the same period the wage mass increased by 65% of the rise in
labour productivity. Then between 1969 and 1973 the profit rate began to slow,
hitting a low of 18.3% as the increase in the mass of wages outstripped that of
productivity by 139%. In 1973–1975 the rate of profit plummetted to 11.8%. This
was mainly due to the wage mass growing by 575% of the increase in produc-
tivity. The profit rate recovered between 1975 and 1980, albeit not to previous
levels. This increase was caused by the slowdown in the growth of the wage
mass, which reached just 59% of productivity growth. The economy then expe-
rienced sustained growth as the profit rate rose to 14.4% and continued to fluc-
tuate just below that figure for the rest of the 1980s. Thus between 1980 and
1985 it fell to 12.9% as the wage mass increased by 109% of the rise in productiv-
ity. Then in 1985–1988 it edged up to 13.4%, partly because wages expanded at
a lower rate than productivity (84%). Finally, the profit rate slumped once
again between 1988 and 1994, this time as low as 8.3%, thus triggering the crisis
which led to the collapse of the Japanese economy. The decisive factor in this
turn of events was the high ratio of wage expansion to productivity, which
reached 261% (Uemura 2000, 144).
Wage mass growth certainly did outstrip productivity growth and drive
down the profit rate as the Toyotist regime expanded from the late 1960s on-
wards. But that trend alone would not have sufficed to plunge the Japanese
economy into crisis and prolonged stagnation15 had it not combined with the
hegemonic crisis of the 1980s. Japan benefitted not only from the political
regulation of Asian capitalism during the Cold War but also from the finan-
cialisation of the world economy from 1979 onwards, which was fuelled by the
dollar’s overvaluation. Between 1978 and 1985, the yen depreciated against the
dollar and rose from 210.4 to 238.4 per dollar, peaking at 249 in 1982. But the
Reagan administration was compelled by its fast-rising current account defi-
cits, especially with Japan, to strengthen the mark and yen against the dollar
and tone down its financialisation strategy of ramping up interest rates and the
14 Hiroyasu Uemura (2000, 143) defines the profit rate as “net profits divided by the gross
capital stock at current prices.”
15 From 1991 until 2002 Japanese annual per capita gdp grew by 0.6%. It then recovered some
of its power to expand, and grew by approximately 2% p.a. in 2003–2008 (Maddison 2010).

value of its own currency. As it plunged deeper into crisis, US hegemony began
losing the political capacity for systemic organisation it had hitherto relied
upon to articulate its own interest with the general interest of bourgeois domi-
nation of the world-economy. Instead, it began imposing its individual interest
at the expense of that articulation, eroding its own ideological legitimacy in
the process. The result was a major shift in US policy towards Japan, whom it
now pressured into liberalising trade and its capital accounts in order to valo-
rise the yen and reduce its trade balances with the US. These circumstances
proved a tipping point for political liberalism, which had used neoliberalism to
channel the Cold War towards economic competition, and so the US withdrew
its invitation to Japan and other East Asian countries to develop (Arrighi 1997a;
Wallerstein 1997; Johnson 1995).
As a result, Japan became considerably less competitive, and the huge inter-
nal efforts it made from the mid-1980s onwards to reduce production costs
could not compensate for having to adapt to the way the world-economy now
functioned. As the rising exchange rate threatened international market pen-
etration, Japanese firms tried to salvage their trading position by slashing prod-
uct prices. As a result, internal wage pressure16 along with external pressure to
adjust to the world-economy seriously undermined the power of Toyotism to
generate economic growth and maintain the profit rate. Its promotion and dif-
fusion as an organisational paradigm in the Japanese economy had only been
made possible by Cold War-induced political regulation of the world economy,
and it was no coincidence that when the Soviet Union fell apart in 1991 the
Japanese economy entered a deep crisis.
Taking the exchange rate, relative export prices, relative labour unit costs
and share in world trade as our indicators, we can see how exchange rate and
wage pressures combined to squeeze the profit rate (oecd 2002).17 In the
years 1985–1990 the yen rose sharply against the dollar as a result of the ac-
tions agreed as part of the Plaza Accord. In 1985 alone it rose from 238.4 to
168.3 yen to the dollar, and in 1990 it hit 145 to the dollar. It was further strength-
ened when Japan applied a policy of financial liberalisation in the 1990s, peak-
ing at 93.9 to the dollar in 1995 before devaluation brought it back to 121.5 yen
in 2001, when the country was in the throes of the post-1998 depression and
spiralling unemployment. Export prices were driven up but much less so than
16 Between 1980 and 1982 the share of wages in the Japanese business sector was 66.1, falling
to 60.2 between 1990 and 1992. It did however reach higher levels between 1992 and 1995.
The figures for the oecd as a whole were a lot lower at 54.8 between 1980 and 1982 and
51.5 between 1990 and 1992 (oecd 2002).
17 See Brenner (1998) for an interesting analysis of the Japanese crisis.

112 Chapter 3
the exchange rate. Thus between 1985 and 1995 they rose from an index of 71.8
to 100, and sustained their level with fluctuations until they reached 100.5 in
2001. Over the same period, relative labour unit costs rose from an index of
49.2 to 100. This was succeeded by a dip which nonetheless did not hold, and
the index bounced back to 80 in 1997 and 97.3 in 2001.
Of all these indicators the exchange rate presents the most variation, closely
followed by labour unit costs. Export prices show the least variation. Because it
tried to limit price variation, Japan was unable to keep its exports competitive.
Falling profits led to less investment and a widening technological gap. As a
result, Japan’s share of world exports fell from 10.5% in 1986 to 6.5% in 2001.
We would conclude at this point in our analysis that Toyotism did not fail
in Japan because it was too weak to generate technological progress and lead
the next stages of the productive forces, but rather the opposite: Toyotism’s
development was blocked because its profit rate was seriously eroded by hav-
ing to adapt to the dynamics of the systemic cycle and by the stronger bar-
gaining power it conferred upon the working class. Toyotism’s institutional
cornerstones – lifetime employment, internal labour markets and democra-
tised labour relations – are a powerful means of achieving technical progress.
But capitalism cannot entertain a sustainable relationship with such arrange-
ments, and so seeks a hybridised setup, which adapts them to the more old-
fashioned institutional relationships associated with the market and Fordism.
In this sense hybridisation represents a big step backwards theoretically for
the regulationists following their ground-breaking work in the 1980s and
1990s. Toyotism did not follow anything like the same course as Fordism be-
cause its progress was blocked and it was prevented from fulfilling its poten-
tial. Fordism took shape in the United States from 1910 onwards, maturing in
the thirties and developing across the world economy in the 1940s–1960s. It
lasted about sixty years as a regime of accumulation before reaching a turning
point. In contrast Toyotism took just thirty years from its beginnings in the
1960s to reach its own tipping point in the late 1980s.
The Japanese crisis is linked to the crisis of surplus value production and
the rate of profit’s renewed tendency to fall as the scientific-technological revo-
lution goes global. The decline in Japanese productivity is directly related
to lower rates of investment.18 During the 1980s investment stood at around
30% of gdp, reaching 32.4% in 1991. It then dropped to 28.1% in 1994 and
25.9% in 2000 because Japanese capital, took advantage of its prerogative over
18 Between 1980 and 1990, Japanese productivity expanded by 2.7% – well above that of the
United States (1.4%) and the oecd (1.8%). Between 1991 and 2002 it fell to 0.9% (oecd
2010).

investment decisions, introduced by Toyotism to protect its profit rate, and

transferred its investments to other Asian countries where labour was cheaper.
As a result, Japanese unemployment rose from 2.1% in 1990 to 5.4% in 2002 and
labour power prices fell below their value. Furthermore, the number of part-
time workers, who earn 40% as much as their full-time colleagues, rose from
15% to 22% as a proportion of the labour force between 1990 and 2001 (oecd
2006). If Japanese profit rates and the economy have experienced a modest
recovery since 2003, it is thanks to the deepening crisis of US hegemony in the
opening decade of the 21st Century, as expressed by the dollar’s devaluation,
the stabilisation of the yen against the dollar, and internal wage containment.
As noted above, the globalisation of the techno-scientific revolution has
posed other problems for capital accumulation, such as crises of realisation
and surplus value appropriation. It is to these issues that we turn next.
3 The Crisis of Surplus Value Realisation
Another major factor in the crisis of capitalist accumulation is the tendency

towards overproduction as monopolies extend their global reach. For the sur-
plus value produced to be transformed into capital accumulation the com-
modities incorporating it must be sold. We saw that capital moves about in
search of extraordinary surplus value and superprofits. However, extraordinary
surplus value does not represent an increase in the mass of surplus value pro-
duced, but rather its redistribution in favour of the monopolies upon introduc-
ing a technological innovation that individually devalues a commodity while
maintaining its social value. For extraordinary surplus value to be transformed
into superprofits and actually accumulated, it must first be realised. As Ruy
Mauro Marini (1979b) points out, the demand for this realisation comes from
the relative saving of labour power achieved through technological innova-
tion, which is converted into the formation of profits or income then spent on
luxury consumer goods and their components.19 But the high organic and
technical composition of capital resulting from the globalization of the tech-
no-scientific revolution restricts the share of the working day that is the equiv-
alent of the value of labour power. The technical progress that comes with
technological innovation thus presents a dual contradiction. On the one hand,
the value it saves is ever less able to satisfy the demand for superprofits. On the
other hand, it ends up threatening to reduce the total mass of surplus value by
reducing productive labour. The transformation of extraordinary surplus value
19 We examine this topic in more detail in Chapter 6.

114 Chapter 3
into superprofits is the main force driving the expansion of historical capital-
ism, and its crisis, due to lack of demand, requires compensatory mechanisms.
One such mechanism consists of a political intervention by the State to trans-
fer values within the structural limits imposed by the dynamics of productive
capital. Although the current expansive phase of the Kondratiev cycle is regu-
lated by the rate of profit, it relies on the formation of fictitious capital to
generate superprofits. However, unlike in the previous recessive phase, when
financialisation predominated, fictitious capital can only be formed with the
help of the productive sector. The articulation of the two prioritises profit rates
over interest rates and ultimately needs the state to guarantee that productive
asset-related investments are valorised. The other compensatory mechanism
lies in the expansion of the international circulation of capital and commodi-
ties in search of new sources of demand and realisation. But such a process
implies serious contradictions.
Under capitalism, the pure logic of accumulation points towards consump-
tion becoming ever more concentrated in individual capitalists and private
enterprises – even when workers and the State account for a large share of the
market. This trend creates difficulties for surplus value realisation because it
places quantitative restrictions on exchange, leading to a risk of overproduc-
tion in the capitalist economy. Such a risk can only be averted if the volume of
exchanges involving business units and individual capitalists increases enough
to compensate for such restrictions.
This contradiction, which threatens surplus value realisation, threatens to
explode over the course of the emerging Kondratiev cycle. According to the
oecd’s classic study of the influence of the microelectronic paradigm on capi-
talist reproduction (oecd 1991), information technologies transform oligopo-
lies into globalising structures that dominate not just national markets but
international ones too. This process involves a battle between oligopolies ex-
pressed through their mutual capacity to penetrate different national markets
which propels capitalism towards a situation where the destruction of capital
has an impact on many of the monopolies themselves. The new ascending
phase of the Kondratiev cycle is marked by this fierce competition and capital
destruction. Inter-monopoly exchanges are consequently far less likely to off-
set the quantitative restrictions on exchange.
Historically, capitalism has responded to crises of realisation, production
and surplus value appropriation by ratcheting up state spending. But such a
response comes up against its own social, political, economic and ideological
limits. As capitalist reproduction comes to depend more than ever on politi-
cal interventions in the economy, so we see a weakening of the structural
asymmetry capital created between politics and the economy. Capital’s basic

unit, the commodity, presupposes the juridical and political segmentation of

market agents and competition between them. The constant growth of the
public sphere in the world-economy poses a serious threat to capitalism’s po-
litical superstructure. The contradiction between the expansion and increas-
ing privatisation of the public sphere, driven by the aforementioned crises, is
a decisive one that cuts across the whole interstate system and undermines
the legitimacy of capital accumulation.
3.1 The Crisis of Surplus Value Appropriation

Capitalism developed as a mode of production in the measure that the innova-
tions introduced by individual capitals offered economic returns that they
themselves would for the most part appropriate. The private appropriation of
economic returns prevailed over their diffusion, whilst technological innova-
tion breathed life into the formula M-C-C’-M’, which captures the process of
capital accumulation and concentration. But the techno-scientific revolution
turned this state of affairs on its head by increasingly transforming the content
of economic assets into subjective and intangible components and established
diffusion as an economic outcome of innovation that is even more important
than private appropriation.20
In Capital, Marx noted that science and nature both make a similar contri-
bution to society in that they are both able to provide it with free goods. Na-
ture, by expanding independently of human labour; and science, because of its
labour-saving potential and its perennial character, which situates it in a high-
er dimension to that of collective labour, i.e. that of universal labour. For Marx,
this latter category represents science’s power of accumulation, thanks to its
cognitive ability to organise the production of human life. Universal labour
accumulates across generations, thus benefitting concrete individuals even if
they have not contributed to its achievements via the currently existing divi-
sion of labour.21
Today, the free availability of science can be seen in the prevalence of diffu-
sion over private appropriation. Much of the research into the economy of
20 To measure the importance of this phenomenon the oecd developed the concept of
the social returns from innovation, although it failed to draw out all of its theoretical-
methodological and prospective implications (oecd 1991).
21 “Incidentally, a distinction should be made between universal labour and co-operative
labour. Both kinds play their role in the process of production, both flow one into the
other, but both are also differentiated. Universal labour is all scientific labour, all discov-
ery and all invention. This labour depends partly on the co-operation of the living, and
partly on the utilisation of the labours of those who have gone before. Co-operative la-
bour, on the other hand, is the direct co-operation of individuals.” (Marx 1959, 103).

116 Chapter 3
technology addresses this issue, and the notion of social rates of return from
innovation has been used to measure diffusion in the modern economy. This
concept was originally developed by Zvi Griliches and Edwin Mansfield in the
1970s and 1980s, and by the 1980s/1990s it had become highly influential. The
oecd devoted a chapter to it in the paradigmatic study of technology referred
to earlier, and later produced a selected bibliography on the topic (oecd 1991,
1998). The social returns from innovation refers to how the falling prices of in-
novations benefit consumers at the expense of innovators. This price move-
ment is a result of the competition’s ability to appropriate the technological
knowledge needed to innovate. In a diffusion-based economy both competi-
tors and consumers benefit from the sharp fall in innovators’ profit rates.
Surveys of the literature confirm that the social returns from innovation
have reached levels far beyond those predicted in the 1960s, 70s and 80s (Grili-
ches 1992, oecd 1991). These returns are concentrated in high technology sec-
tors, which are R&D-intensive and technically advanced, the prime example
being the electronics industry.
Diffusion is central to the political economy of modern-day capitalism, but
to take full advantage competitors must develop strategies aimed at closing
the technological gap. In this they are helped by the development of the pro-
ductive forces. At the same time the tendency towards diffusion must be
understood dialectically. Because it contradicts the logic of capitalist accumu-
lation, capitalism responds by trying to compensate for it. Thus enterprises at
the organic core of the world-economy develop strategic alliances that allow
them to expand the social foundations of their work by incorporating exter-
nalities into their competitive structure in order to preserve their capacity for
monopolistic expansion.22 Costs and knowledge are shared, and competition
is reduced to the realm of partnerships, putting even bigger obstacles in the
way of other competitors. Network management, as the literature calls it, has
led to a selective decentralisation of intra-company knowledge and limited
alliance-building to gain advantage in a competitive struggle that will lead to
market monopolies. Unless they involve mergers and acquisitions, these part-
nerships do not eliminate the differences between companies and limit them-
selves to specific activities (oecd 1991). Another response is for the State to
intervene by boosting funding for R&D activities.
Nonetheless, these measures tend to exhaust themselves. This happens for
two reasons. Firstly, because microelectronic trajectories and the technological
22 In 1995, strategic partnerships to develop, produce, distribute and market new technolo-
gies were concentrated in the central countries, mainly the United States, Japan and the
European Union (unctad 1997).

reconversion of the world economy make the social returns from innovation
more intensive and extensive. And secondly, because when peripheral and
semi-peripheral countries apply catching-up policies, they appropriate the in-
ternational diffusion of knowledge inherent to the techno-scientific revolution
by investing in raising labour power value and in its productivity and scientif-
ic/technological training.
Capital concentration develops not only by creating technological monopo-
lies, but also by appropriating the part of the value produced in segments with
a lower technical composition via surplus value appropriation. Capital accu-
mulates via the expansion of the most dynamic branches of production, which
increase their technical and organic compositions vis-a-vis the average across
the economy as a whole. If this sectoral expansion relied solely on its internal
capacity to extract surplus value then it would face problems of overaccumula-
tion, which would drive down the rate of profit. As seen earlier, when the tech-
nical composition of capital in sectors diffusing technical progress rises, so too
does the value of fixed and circulating capital, whilst the relative or absolute
size of the workforce shrinks. This contradiction is resolved by the formation
of prices of production, which allows capital from the more dynamic segments
of higher organic composition to migrate towards those with lower technical
composition and higher profit rates, thus overcoming the obstacles standing in
the way of its valorisation.
With this shift, capitals of a higher composition transfer some of their tech-
nological assets to segments with a lower composition, introduce or develop
the international division of labour, and compare values across sectors. In
higher composition sectors this ends up cheapening production costs and
boosting profit rates because technological decentralisation devalues and de-
preciates products from lower composition sectors, driving them towards
those of higher composition. The component parts of constant and variable
capital in higher composition segments can in this way be cheapened. Con-
versely, the lower composition sectors see an increase in production costs and
technological heterogenity and the devaluation and depreciation of their
products, and lose surplus value to the sectors which fuelled the formation of
prices of production. In addition, the integration of markets brought about by
prices of production enables capital of a higher composition to expand the
workforce. As a result, capital of a higher composition appropriates part of the
surplus value created by that of a lower composition.23
23 Henrik Grossman examined this issue in detail, arguing that capital exports from imperi-
alist countries should primarily be understood as a means of compensating for the rate of
profit’s tendency to decline. However we find no grounds to claim, as others have, that the

118 Chapter 3
This migratory movement could not happen without capitals from the pe-
ripheral and dependent productive sectors resorting to super-exploitation as a
means of mantaining their profit rates, driving the prices of labour power be-
low their value to offset the rate of profit’s tendency to decline (Marini 1973,
1978, 1992a, 1992b, 1996; Martins, 1996, 2009). Super-exploitation plays a crucial
role in sustaining ever greater capital migration and the equalisation of profit
rates.
With its global scales and huge potential vis-à-vis its application to produc-
tive processes, the microelectronic paradigm allows capital to advance this
process. It can do so because it offers a material basis for the de facto levelling
of organic and technical compositions across different branches of production
during the ascending phase of the following Kondratiev cycle – providing the
management of production can be technically integrated, as we saw earlier.
However, this tendency towards the full development of the prices of produc-
tion, inherent to capital accumulation, is contradicted by super-exploitation
and the limits it places on equalising profit rates once the levelling of technical
and organic compositions has reached a certain point.
As Marx notes in Capital, as the organic and technical compositions of capi-
tals get ever closer, so the rates of surplus value in different sectors must gradu-
ally equalise in order to level rates of profit. Super-exploitation, in driving up the
rate of surplus value by dragging the prices of labour power below their value,
cannot compete generate as much as surplus value as technological innovation
and no longer serves to help level the compositions of the different capitals.
The fact that globalization extends super-exploitation to the whole of the
world economy does not stop this contradiction from developing. Neither the
tendency towards one regime of labour power reproduction nor the tendency
towards the technical levelling of production can be fully realised under capi-
talism. As seen, the modern world system is based on an international division
of labour that creates three zones in the world economy: core, semi-periphery
and periphery. This division guarantees the economic, social, political and
ideological conditions that enable surplus value appropriation and capitalist
development in the most technologically advanced regions. Even as super-
exploitation spreads to the central countries and institutes a single worldwide
regime of labour power reproduction, dependent and core countries are still
required to perform different functions in the world-economy.
In the centre, the trend towards super-exploitation affects a material and
symbolic structure designed to ensure competitiveness and leadership in the
theory of super-exploitation can already be found in Grossman, even if he did provide

much of its theoretical inspiration.

world economy. The tendency to drive prices below the value of labour power,
which characterises super-exploitation, combines with a trend towards
training that same labour power to ever higher levels but at the same time
preventing it from fulfilling its potential. In the periphery, heightened global
competition forces local bourgeoisies to upskill their workers. At first, they are
helped in this by the fact they are starting from an extremely low skills base.
But the subordinate position of local bourgeoisies within the international di-
vision of labour and their limited relationship with technological innovation
then severely restricts the expansion of training. Today’s regimes of accumula-
tion, which consume workers’ subjective attributes and turn them into innova-
tors, quality controllers and waste reducers, stand as proof of how this stunts
and otherwise impacts upon productivity.
For the above reasons, labour super-exploitation in dependent countries is
unable to sustain the expansive movement of prices of production and the tech-
nological levelling of production set in motion by the techno-scientific revolu-
tion. The attempt to overcome the dependent countries’ productive insufficiency by
deepening labour super-exploitation does not solve their structural deadlock.
Aside from the expansive cyclical movements – when prices deviate above their
value – this is what tends to give super-exploitation its harshest features, which
are linked to wage and rights cuts and achieve meagre gains at a huge social and
political cost. Historical capitalism thus encounters in a dimension of its world-
economy serious limits to the development of the productive forces.
4 The Political Economy of Globalisation: Drawing Up the Balance
We have seen that globalization produces a crisis in the development of the

secular trends of historical capitalism. When endless accumulation appropri-
ates the techno-scientific productive forces it comes up against serious contra-
dictions. This aspect of the crisis of historical capitalism’s structures is crucial
as it signals a crisis of their material base. But two other crises must develop in
order to bring the decline and supersession of historical capitalism within the
sights of social struggle: a crisis of the modern world system’s political, legal
and ideological superstructure – itself part of capitalism’s structures – and a
conjunctural crisis. These two crises are the key to mankind breaking free from
Braudel’s “prisons of the longue durée” and articulating the realm of the evene-
ment or short term with the new. But as Wallerstein observes, all we can say
about the future is that in forty years’ time we will no longer be living under
historical capitalism. It is therefore incumbent upon social and popular move-
ments to fight for an alternative that offers us a far better life than at present.

120 Chapter 3
The crisis of historical capitalism’s secular trends exacerbates the equally

irreversible crisis of the modern world system. It also impacts sharply upon on
the Kondratiev cycle. Thus the ascendant phase of this cycle will be influenced
by the downturn of capital’s crisis-ridden secular trends and of the hegemonic
cycle. It should be shorter than the one that developed over 1938–1973 during
the ascendant phase of US hegemony, and if we exclude the period of systemic
chaos then it should see less intense growth than the latter too.24 The most fit-
ting comparison would be the ascendant Kondratiev phase that unfolded dur-
ing Britain’s hegemonic crisis, which lasted just 18-odd years and experienced
only modest growth. But there are limits to that analogy too. The new Kondra-
tiev cycle is developing during a crisis of secular trends, not their expansion.
Under British hegemony the world system projected itself onto the entire
globe and transformed the world-economy into a worldwide economy. Liberal-
ism brought the dissolving powers of competition to the very edges of the
world system. No region under the thumb of free trade imperialism suffered
the effects of competition more than Asia – India and China especially – as its
manufacturing industries were ruined and its artisan producers forced to com-
pete with British and European industry.
In the current period, neoliberal forces have unleashed the dissolving ef-
fects of competition on the inner core of the modern world system. As a result,
technological innovation and capital accumulation have been accompanied
by the destruction of capital and jobs, and the rate of growth in the world
economy is very poor for an ascending Kondratiev phase given the sophisti-
cated nature of the modern-day economic base. Meanwhile, we are only just
starting to see the accumulation of antisystemic forces needed to launch a po-
litical offensive against the ideological drift in the world-economy. The latest
version of the ‘Third Way,’ which seeks to reconcile social welfare commit-
ments with typically aggressive capitalist competition, has been applied only
intermittently and has failed to change the course of the world economy.25 By
contrast, resurgent popular nationalism and integrationism in Latin America
harbours far more counterhegemonic potential. The post-2010 mature phase
of the Kondratiev cycle should see a more powerful attack launched against
neoliberal hegemony in response to the deepening crisis of capitalism’s secular
trends.
24 The postwar golden age, when US hegemony stabilised, saw average per capita growth of
2.9% p.a. between 1950 and 1973.
25 James Petras (2000, 137) describes the ‘third way’ in terms of three waves. The first was
based on a social-reformist approach and lasted from the late 19th century until the end
of the Second World War; the second was associated with postwar welfare capitalism, and
the third is “the one we are experiencing today, and which began in the mid-1990s.”

We saw that the latter crisis is characterised by crises of surplus value pro-
duction, appropriation and realisation. The crisis of surplus value production
typically manifests itself in the decline of productive labour and in the limits
on expanding the mass of surplus-value by raising the technical composition
of capital. In other words it is a crisis of capitalist labour relations which calls
its relations of production into question. Capital finds itself unable to develop
a new mode of labour power regulation and is forced to limit the development
of its more advanced forms such as Toyotism, which had increased the pace of
technological innovation in the name of maintaining its profit rates. It seeks to
appropriate the mass of surplus-value, which it has trouble producing, by devi-
ating price away from value. But capital’s high technical composition limits the
formation of demand by saving on the very labour power which makes it pos-
sible to turn extraordinary surplus value into superprofits. It thus requires
compensation mechanisms in order for superprofits to be made. Such price
deviations are encouraged by the State at the political level and by intensified
international competition, which combine with technical progress to transfer
much of the mass of surplus value produced in sectors with sub-average
organic compositions of capital into the hands of global monopolies.26

26 As Marx affirms in Capital, all labour is both abstract and concrete. It is abstract in the
sense that all concrete labour consumes human labour power in general, i.e. in the physi-
ological sense of consuming brain, muscles, nerves, hands etc; and concrete in as much
as any expenditure of human labour power assumes a specific form linked to the produc-
tion of particular use values and labour processes. To establish the value of commodities
we must identify what they have in common and what enables us to compare them with
each other. Treated as use-values, commodities cannot by definition be compared to one
another because they have different properties. What does allow us to compare them in
value terms is what they possess in common: a quantity of abstract labour. A commodi-
ty’s value is determined by the amount of simple labour it contains. That is, by the aver-
age amount of labour, skill and intensity, as determined by a society’s level of civilisation.
For Marx, value is created through the expenditure of abstract labour power and does
not include productivity, which belongs to the sphere of the concrete conditions of la-
bour. Nevertheless, competition leads to product prices deviating considerably from
their value. For simple labour power to actually equal average labour power, it must oper-
ate in average social conditions and under normal technological conditions. Only then
will it represent socially necessary labour. When simple labour power operating in sub-
average technological conditions is confronted in the market by superior technology, it
no longer equates to average labour power. Marx’s theory of value uses three categories
to describe and conceptualise these real-life deviations. The first is market value, where
the technological differential between a company and the average in its branch of pro-
duction is determined by a commodity unit price that is higher or lower than the quan-
tity of socially necessary labour incorporated into the commodity. The second is the price
of production, which levels profit rates across different branches of production through
the migration of capitals in search of higher returns, and devalues commodities in

122 Chapter 3
I nternational competition is linked not only to world trade but above all to the
development of prices of production, which tend to technically level produc-
tion and allow international monopolies to plan their global business activity
in an integrated fashion. But the super-exploitation fuelled by this new inter-
national division of labour is unable to sustain the equalisation of profit rates
between core and dependent countries. It thus limits globalization and pro-
duces serious macroeconomic imbalances in peripheral countries. Widespread
capital destruction combined with intensified monopolistic competition in a
world-economy that has reached its geopolitical limits is proving a real barrier
to surplus-value realisation – as is the ongoing liquidation of strictly national
bourgeoisies and high structural unemployment. As a result, historical capital-
ism has produced a low rate of economic growth at its globalised stage.
It is not that capitalism is being led into a stage of permanent depression
by a financial capital increasingly detached from production, as neo-develop-
mentalists like François Chesnais, Samir Amin, Maria da Conceição Tavares,
José Luis Fiori, Luis Gonzaga Belluzzo and Pierre Salama argue. As we explain
below, neither the theory of value – their basis for claiming there is a suppos-
edly pure movement of capital towards the formula M-M’ – nor the historical
record support such a position. Instead, this new stage of capitalist develop-
ment should be understood by combining the perspective of the longue durée,
i.e. in terms of the articulation of structural and conjunctural times, using the
analytical tools needed to understand them, with an analysis of contemporary
reality. Therein lies the challenge to dialectical thinking.
Another sign of the crisis of surplus-value appropriation is the clash be-
tween the strategies used by capital and the new productive forces’ inherently
socialising characteristics. This conflict is expressed by the widespread diffu-
sion of scientific knowledge, whether or not it is incorporated into new tech-
nologies. We saw earlier how capital responds to this situation by developing
strategic alliances. These alliances are mainly between the biggest productive
and financial enterprises, which associate in order to improve their competi-
tive capabilities, exclude competitors, and retain a monopoly of strategic
knowledge. They frequently look to the State for R&D funding and protection
via mechanisms external to self-regulated markets, such as patent law. But
such responses have a limited effect. The development of new productive
branches of capital of lower technical composition and more intensive labour. The third,
extraordinary surplus value, can operate either in one single branch of production or, as
Marini asserts, across different ones, and designates the declining value of products in
relation to their price in one firm or sector. This has a negative impact on the other firms/
sectors, which consequently experience the opposite, i.e. a fall in prices in relation to
value, as the global mass of surplus value no longer increases.

f orces facilitates the diffusion of knowledge, and world economy growth rates
under a globalising historical capitalism have been minimal, as we show in the
next chapter. This weakens historical capitalism and cannot stop peripheral
and semi-peripheral countries pursuing catch-up policies.
The rise of China and its impact on the functioning of the world economy
has created a complex environment in which post-capitalist elements com-
bine and hybridise as the capitalist world economy expands and declines. The
Chinese model of accumulation without dispossession links technological
innovation to the proliferation of essential consumer goods and mass con-
sumption in Chinese society. This has had a positive impact on the world price
structure for primary product by boosting demand, whilst negatively influenc-
ing that of manufactured products by increasing supply and competition. Such
a context creates a contradictory conjuncture of both risks and opportunities
for peripheral countries. Thus, on the one hand it improves their balances of
payments, temporarily containing their financial imbalances and the decline
in the world system; but it also contributes to the reprimarisation of their ex-
port models and international insertion on poorer terms in the medium to
long term as the nature of Chinese consumer demand changes.
The modern world system is in deep crisis. It depends above all on neoliber-
alism, which rapidly diminishes its ideological power to keep articulating the
world-economy through its leadership. The prisons of the longue durée are no
longer secure in the material sense and are increasingly symbolic in nature.
Conditions are ripe for the continental countries of the periphery and semi-
periphery to start up a movement to restructure the international division of
labour from the bottom up. If in the past the more conservative dependency
theorists led by Fernando Henrique Cardoso argued that dependency on the
hegemonic powers of the modern world system was a necessary condition of
development, today it is clearer than ever that the opposite is true. For periph-
eral countries, breaking with dependency is not only a pre-condition of their
development but is a structural part of reorganising the world system and put-
ting the world economy back on the road to development.
We turn now to the crisis of the modern world system and the alternatives
facing the new antisystemic movements.
5 The Crisis of the Modern World System
5.1 Neoliberalism – Ideology of a World System in Crisis

We noted that during the US hegemonic crisis the systemic cycle has swung
towards cosmopolitanism-imperialism. This pendular movement is driven by

124 Chapter 3
neoliberalism, which is its dominant ideological form. Neoliberalism is a form

of regulation of the world-economy that prioritises external economies over
internal ones. It is crucial to the expanded reproduction of historical capital-
ism as it enters a stage where it finds it increasingly difficult to produce surplus
value. Surplus value appropriation has become central to capital accumula-
tion, making it imperative to encourage the trend towards the globalization of
the law of value and dismantle any barriers to the widest circulation of capital
and commodities worldwide.27 National and international markets are in-
creasingly integrated, as shown by the rise in international trade and capital
flows as a portion of gdp.28 But Marx never suggested that the tendency of the
law of value to globalize would develop without contradictions. It suffers from
two limitations, both of which are ultimately related to its historical dimen-
sion. The first limitation concerns the fact that capital only imposes itself on
populations and must articulate itself with territorial powers, represented by
the State. The second has to do with the fact that the globalisation of the law of
27 In Capital Volume iii Marx refers to the conditions that enable the law of value to become
generalised. These conditions are linked to the universalisation of the commodity form
and therefore of competition and the subsequent equalisation of profit rates:
“The incessant equilibration of constant divergences [between different rates of profit
– cem] is accomplished so much more quickly, (1) the more mobile the capital, i.e., the
more easily it can be shifted from one sphere and from one place to another; (2) the more
quickly labour-power can be transferred from one sphere to another and from one pro-
duction locality to another. The first condition implies complete freedom of trade within
the society and the removal of all monopolies with the exception of the natural ones,
those, that is, which naturally arise out of the capitalist mode of production. It implies,
furthermore, the development of the credit system, which concentrates the inorganic
mass of the disposable social capital vis-a-vis the individual capitalist. Finally, it implies
the subordination of the various spheres of production to the control of capitalists (…)
The second condition implies the abolition of all laws preventing the labourers from
transferring from one sphere of production to another and from one local centre of pro-
duction to another; indifference of the labourer to the nature of his labour; the greatest
possible reduction of labour in all spheres of production to simple labour; the elimination
of all vocational prejudices among labourers; and last but not least, a subjugation of the
labourer to the capitalist mode of production.” (Marx 1959, 192–193).
28 International capital flows grew by 15.9% p.a. from 1970 to 1980, climbing to 21.3% be-
tween 1982 and 1990. In 1993–2000 they expanded by an impressive 27.2% p.a., reaching
US$1,491,934 million (unctadstat, 2011). Accordig to Maddison (2001, 127) merchandise
exports as a proportion of world gdp rose in turn from 10.5 per cent in 1973 to 17.2 per cent
in 1998. Between 1999 and 2008 world trade grew at 6.9% p.a. (oecd 2010), outpacing
gdp, which grew by 4.2% p.a. between 1999 and 2006.

value is founded on internal contradictions that stop it from fully

developing.29
These limits mean the globalization of the law of value only imposes itself
amidst multiple deviations. As an ideology, then, neoliberalism is two-faced:
on the one hand it represents the driving force and need to globalise competi-
tion, leading to what Marx describes as the general laws of capital imposing
themselves on individual capitals; but on the other hand as a concrete, histori-
cal force it deviates from its ideological roots in universalised competition.
This need and the deviations in question relate to the advanced stage of capital
accumulation in which neoliberalism emerged, and they are what distinguish-
es it from the liberalism that developed under British hegemony in the 19th
and early 20th century.
As Perry Anderson notes, neoliberalism was a theoretical and political re-
sponse to the interventionist welfare state in postwar North America and
Western Europe. Basing itself on Friederick Hayek’s The Road to Serfdom (1944),
it took shape as a doctrine when a 37-strong group, including Hayek himself,
Milton Friedman, Ludwig von Mises and Karl Popper, founded the Mont Pel-
erin Society at a hotel in southern Switzerland in 1947. Their aim was to con-
front what they saw as Keynesianism and political liberalism’s barely disguised
socialism and prepare the way for a rigid version of capitalism rooted in com-
petition and economic liberalism (Anderson 1995, 9–10; Santos 1999b, 127).
Neoliberalism relies on irrationality to attack planning and its role in organ-
ising society. Just as Edmund Burke used the weakness of reason compared to
nature to argue against the French Revolution, praising prejudice when faced
with an inability to explain events, so neoliberalism affirms that as man is
29 We saw that the general tendency of capital accumulation is the expansion of M into M’
through the formula M-C-C’-M’. This means (especially during globalization) capital con-
centration and monopoly, which block the introduction of individual private capitals and
increasingly restrict their mobility. The flipside of this process is that profit rates in the
world economy are largely levelled through labour super-exploitation – when capital of
lower technical composition is unable to migrate in order to share in the mass of surplus
value appropriated from it by more technologically advanced branches of production; or
if it is unable to migrate towards a branch of higher composition when it’s the profit rate
in its own branch declines. We further noted that in becoming a way to level the rate of
profit, super-exploitation represents a limit on its own full development because of its
relatively diminished ability to create surplus value, which restricts the levelling of the
technical composition of capital. We saw also that its subsumption to capital means la-
bour is converted by machinery into intensive labour power. This ultimately leads to it
being dematerialised, thus threatening productive labour. Finally, we noted that capital’s
appropriation of the techno-scientific productive forces involves developing the social
returns of innovations.

126 Chapter 3
imperfect by nature and incapable of consciously organising reality, he must

therefore submit to ‘spontaneous order.’ Starting out from the individual, it
seeks to guarantee freedom, defined in the negative sense of anything a person
can do without imposing their choice on someone else. The individual is un-
derstood not as a product of society who develops in continuous interaction
with it, but as an independent being who associates with others on the basis of
voluntary cooperation. Upon establishing itself as a far deeper stage of interde-
pendency, neoliberalism sees humanity’s social and political development as a
threat to private property and tries to destroy it in order to protect private
property from any such threat of resignification. Unlike the liberal movement
of the 19th and 20th centuries, which to a greater or lesser extent associated
freedom with struggles against absolutism, with the right to popular sovereign-
ty and with extending the right to representation, neoliberalism rejects any
political interference in the economy in the belief that universal suffrage and
social rights to representation might lead to the collective will imposing itself
on individual freedom of choice. Milton Friedman expressed this very clearly:
The relation between political and economic freedom is complex and by

no means unilateral. In the early nineteenth century, Bentham and the
Philosophical Radicals were inclined to regard political freedom as a
means to economic freedom […] The triumph of Benthamite liberalism
in nineteenth-century England was followed by a reaction toward in-
creasing intervention by government in economic affairs. This tendency
to collectivism was greatly accelerated, both in England and elsewhere,
by the two World Wars. Welfare rather than freedom became the domi-
nant note in democratic countries. Recognizing the implicit threat to in-
dividualism, the intellectual descendants of the Philosophical Radicals –
Dicey, Mises, Hayek, and Simons, to mention only a few – feared that a
continued movement toward centralized control of economic activity
would prove The Road to Serfdom, as Hayek entitled his penetrating anal-
ysis of the process. Their emphasis was on economic freedom as a means
toward political freedom.
friedman 2002, 10–11
Neoliberal ideologues base their programme on the following core principles:

a. Drastically reducing direct and indirect State intervention in the econo-
my, especially through privatising public concerns and deregulating the
economy.
b. Abandoning the policy of using public deficits to achieve full em
ployment and economic growth. Instead they favour balanced and

forecastable fiscal and monetary policies, with clear rules applied to

changes in the monetary reserve and aimed at stabilising prices.
c. Trade and exchange rate policies aimed at unilaterally removing tariff
and para-tariff barriers and adopting flexible exchange rates tied to mar-
ket movements. Unilateral action rests on the notion that an economy
which opens itself up can benefit from the effects of competition even if
other economies do not follow suit. Flexible exchange rates are not an
excuse for unstable rates, but rather assume that exchange rate stability
depends on rates being allowed to fluctuate freely in line with market
forces. Neoliberals also suggest that other countries should peg their cur-
rencies to the dollar, once parity has been set by the market and assum-
ing they apply fiscal and monetary austerity.
d. Restricting trade union activity. Neoliberals see unions as monopolies
that cause price deviations and prevent wage levels from being estab-
lished correctly, leading to unemployment. One restriction that deviates
prices and should be swept away is the minimum wage.
The contradictions between neoliberal theory and the policies applied in its
name have led some authors to rightly claim that the unity of the two is falla-
cious. Theotonio Dos Santos, for example, shows that the rise of neoliberal he-
gemony was marked by an expansion of state intervention, military spending,
public deficits and financial speculation, all articulated through the US gov-
ernment (Santos 1992b, 1993a, 1995b, 1999a, 1999b, 2004).
The heyday of neoliberalism lasted from the early 1980s, with the election
victories of Margaret Thatcher in Britain (1979), Ronald Reagan in the US (1980)
and Helmut Kohl in Germany (1982). It lasted until the late 1990s, when other
forces began to challenge its hegemony either head-on or by diluting its f ounding
principles. This challenge took various forms: the renewal of social democratic
thought; the resurgence of nationalism/regionalism (of socialist influence or
involving major state intervention), and the return of pre-capitalist ideological
and cultural forms such as Islamism and indigenism, which predate Western
imperialist subjugation of Afro-Asiatic and Ibero-American peoples respective-
ly. The social-democratic offensive was initially marked by the election of Bill
Clinton (1992/1996), Tony Blair (1997), Leonel Jospin (1997) and Gerhard
Schröder (1998), all of whom promoted Third Way policies. In Latin America the
crisis of the Washington Consensus led to the downfall of almost all of the open-
ly neoliberal regimes. In their place were elected either centre-left governments
offering a cocktail of Third Way policies, such as Lula (2002, 2006), Dilma Rous-
seff (2010), Tabaré Vázquez (2004) and Michel Bachelet (2006); or the more radi-
cal nationalist projects represented by Hugo Chavez (1999, 2000, 2004, 2006,
2012), Nicolas Maduro (2013), Nestor and Cristina K irchner (2003, 2007), Evo

128 Chapter 3
Morales (2005, 2008), Manuel Zelaya (2005), Rafael Correa (2006), Daniel Ortega
(2006), Fernando Lugo (2008) and Jose Mujica (2009).
In arguing that the golden age of neoliberal ideology ended in the 1990s we
are not saying that neoliberalism is no longer hegemonic or cannot enjoy brief
recoveries. The structural exhaustion of neoliberalism deepens over the course
of the expansive Kondratiev cycle and makes qualitative leaps forward at every
point of cyclical inflexion. If the Third Way emerged in the US and Europe as
the alternative to neoliberalism during the first cyclical phase of this Kondra-
tiev cycle, then the nationalist/regionalist resurgence in Latin America and
semi-continental countries such as Russia, the articulation of social move-
ments in favour of another kind of globalization and the Islamic offensive are
products of neoliberalism’s crisis and represent the structuring of the cycle’s
second phase. The transition towards the third cyclical phase of expansion has
helped fresh ideological alternatives emerge. This is most clearly visible in the
transnational political culture of the United States, which has given a sense of
identity to immigrants, blacks, workers and youth of Anglo-Saxon origin. Hav-
ing shaken up US social democracy and propelled Barack Obama to power,
this presents an opportunity to reinvent social-democratic thought and deep-
en its links to antisystemic movements in the US and elsewhere. But the gov-
ernment formed after Obama’s victory represented expectations and challeng-
es more than an alternative to the neoliberal era, and both monopolies and
antisystemic movements laid claim to it. Neoliberalism can only be overcome
by articulating global alternatives. Otherwise it will become more powerful,
but this time under forms that exacerbate its most regressive features. One
example of this is the fascistic ideological crusade embarked upon during
George Bush’s term in office (2000–2008), which stimulated the world econo-
my. Such developments are largely a consequence of the timid nature of the
social democratic experiment and stand as proof that we could see new neo-
liberal offensives led by its most orthodox, fundamentalist sectors.30
Neoliberalism should be understood not only as an ideological project, but
also in terms of its real, historical nature, which relates to the crisis and decline
of US hegemony and the modern world system. Seen thus, we find it often flies
30 Note to the English edition: As we noted in the Brazilian edition of this book, the fragile
nature of the alternative represented by third way policies could open the door to the re-
turn of neoconservative policies combining a neoliberal approach to taxation with pro-
tectionism in trade and social policy and rooted in a fundamentalist nationalism imbued
with neofascism. As we have argued, neoliberalism is the prequel to fascism: unable to
overcome and neutralise the socially disruptive competitive pressures it brings to bear, it
can produce an evolution towards neofascist forms.

in the face of its own founding principles. Hence we would define it in terms of
the following characteristics:
a. Greater state intervention in the economy, and higher public deficits, nation-
al debt, interest rates, and interest as a share of gdp. These were the core
features of neoliberalism up until the mid-1990s. They were then partly
modified by Third Way governments, who sought to generate fiscal sur-
pluses in order to reduce government liquid debt, thereby reducing the
share of the public budget consumed by interest payments.31 But electoral
failure in the first decade of the 2000s prevented them from continuing
with such policies. The gap between public spending and the population’s
well-being allowed neoliberalism to renew its attacks by demagogically
advocating tax cuts. Because George W. Bush’s new neoliberal offensive
came during the expansive phase of the Kondratiev cycle, when US hege-
mony was on a trajectory of accelerated decline, it could do little by
way of raising interest rates or practicing ‘strong dollar diplomacy.’ But it
did widen deficits and the national debt, which both continued to be
tied to imperialist and tax-cutting policies. Nonetheless, the resulting fi-
nancial imbalances failed to prevent a crisis of accumulation in the private
sector in 2008 and 2009. This crisis erupted because the state had partly
31 Between 1993 and 2000, the initial government balance rose from a deficit of -1.6% of gdp
to a surplus of 2.6% in oecd countries. This turnaround was largely due to the United
States transforming its initial result of -1.5% into a surplus of 4.1%. The total oecd govern-
ment financial balance, which includes interest payments, also showed a significant im-
provement, rising from -5% to 0% of gdp in the same period. oecd net debt also shrank.
Although it grew consistently in the 1980s, peaking in 1996, it then declined from 44.3% to
38.9% of gdp by 2000. The renewal of the neoliberal offensive announced by George W.
Bush’s controversial election victory then created a new imbalance in the governmental
sector.
Between 2001 and 2008 the oecd financial balance declined from 0.2% to -2.6% and
net public debt expanded from 38.9% to 42.4%. In the US this deterioration in public fi-
nances was even more pronounced, as net public sector debt jumped from 36.4% to 48%,
and the financial balance tumbled from 1.6% to -5.2%. With the 2008–2010 crisis, the
financial balance fell to -6.3% and -8.9% of gdp and net public debt rose to 57.7% and
66.6% of gdp in the oecd and the US respectively. These figures were particularly signifi-
cant because of the spike in state spending with the return of imperialism and war; the
expansion of the national debt to allow extraordinary fictitious profits to be made, and
tax cuts promoted by neoliberal demagoguery doing ideological battle with the Third
Way.
Although oecd tax receipts increased during the Third Way’s ideological offensive
from 38% to 39.3% of gdp, they declined again during the neoliberal onslaught that fol-
lowed, hitting a low of 37% whilst averaging 38%. In contrast, public spending fell during
the former period from 42.9% to 39.1%, and then rose to 40.7% in 2008 as the neoliberal
offensive restarted (oecd 2010).

130 Chapter 3
d isassociated itself from the generation of extraordinary profit, and, in

keeping with the rate of profit’s centrality to interest rates during the cur-
rent phase of accumulation, its leadership in this terrain was transferred
over to the private sector. Although such a transfer is relatively normal
during capitalism’s cyclical oscillations, at such a stage of development of
capitalism’s secular trends the contradictions it throws up threaten the
very sustainability of capitalism. Large-scale state intervention in order to
protect fictitious wealth created in private markets around the real econ-
omy, which President Bush initiated and Obama deepened, has increased
state intervention in society and plunged neoliberalism into an ideologi-
cal crisis. Such state intervention was cleary directed to private monopo-
lies. Their impact is felt globally, since fictitious wealth creation in the
world economy is tightly linked to the dollar, and they severely constrain
social democracy’s structural ability to satisfy the population’s welfare de-
mands whilst at the same time generating extraordinary profit.32 The
Obama administration could follow other Third Way governments in
32 The big difference between neoliberal and Third Way policies is that while the former
tends towards fiscal and financial imbalances, the latter seeks to balance the books, main-
ly by cutting state expenditure. Remarkably then, reality turns the classic ideological
positions held by neo-liberalism and social democracy on their head. The neoliberals pro-
mote a more active State, mainly in relation to the military and financial sectors. The he-
gemonic State’s undynamic productive sector is opened up to competition, leading to
deficits and financial sector growth in order to finance them. This is exacerbated by state
spending being orientated towards a military sector which is too obsolete to lead the new
IT-based technological paradigm. The military sector prioritises hierarchies and secrecy,
and its high levels of automation make state investment an ineffective way of stimulating
economic growth given the low dynamism of its Keynesian multiplier. Social democracy
pursues financial equilibrium in order to contain the negative effects of interest pay-
ments on social welfare programmes. But in so doing it takes on the burden of paying the
debt those payments represent, and so loses popular credibility.
It is a hard trick to pull off, and usually leads to defeat at election time. Containment
is achieved by cutting primary public expenditure. This generates the fiscal surpluses
needed to reduce national debt, and therefore the weight of interest payments. Such a
policy is easier to apply in countries where the military sector and state spending unre-
lated to the reproduction of labour power are large in size. In the US, state expenditure as
a proportion of gdp fell from 37% to 34.2% under President Clinton, whilst in Germany
it dropped from 48.1% to 47% during the Schroder administration, and in France from
54.5% to 52.6% under President Jospin. In Britain it fell from 40.7% to 38.3% of gdp
when Tony Blair’s term in office overlapped with that of President Clinton but then rose
to 45 per cent of gdp in 2005–2007, mirroring the Blair-Bush relationship, their imperi-
alist ideology and intervention in Iraq (oecd 2010). Although Third Way policies are not
identical to neoliberal ones, neither do they clash with them or represent a historical al-
ternative. Rather they form part of the neoliberal paradigm and are unlikely to overcome
its limitations and impose their own agenda.

f inancing the aforementioned government transfers by limiting primary

and welfare expenditure. But as the 2010 Congressional elections showed,
that would prove fatal to his legitimacy.33
b. Articulation with territorialism. We saw earlier that neoliberalism belongs
to a period in which the systemic pendulum has swung back towards
cosmopolitanism. That does not entirely set it apart from liberalism,
which developed in a similar kind of period. The difference is rather that
by the time neoliberalism became established the physical and territo-
rial expansion of the world system was already complete. Whenever the
pendulum swings towards territorialism, the right of peoples to self-
determination is seriously threatened and violated. Thus during the
Genoese-Spanish period of hegemony it was colonialism that decimated
the local population in the Americas34 and imposed slavery and the
trade in black slaves on Africa. Then British hegemony imposed neoco-
lonialism, which penetrated Asia and, this time, Africa to an unprece-
dented extent. The interstate system developed thanks to these periods
of hegemony, even though the right to self-determination was trampled
on in outlying regions forced to join the world system. British hegemony
saw the principle of popular sovereignty and an early version of the wel-
fare state develop, both of which became far more influential in the
postwar period. But in the current phase of a physically integrated world
system, the cosmopolitan expansion of historical capitalism no longer
violates the right to self-determination in areas external to the modern
world system but in those internal to it. This means the sovereignty of
national states and ultimately of the interstate system itself is being vio-
lated. It is hardly surprising that neoliberals such as Friedman dissociate
economic freedom from politics, regarding it as a prior condition of the
33 Note to the English edition: The 2010 and 2014 elections showed how far Obama’s ratings
had fallen, with the Republicans taking majority control of both Houses. Furthermore,
the Democrats lost 4 million votes in the 2012 and 2016 elections compared to 2008. In
2016 they won the popular vote but it had shrunk enough to hand Trump victory via the
Electoral College. This poor performance can be explained by the Obama administra-
tion’s commitments to financial capital. Although he expanded workers’ health care cov-
erage and raised spending on human needs (health, education, social security and social
services) from 12.8% to 15% of gdp, poverty and inequality increased. The poverty rate
climbed from 13.2% in 2008 to 14.8% in 2014, and only slipped back down in 2016 (12.7%).
Inequality using the Gini coefficient rose from 44.4 to 45.4 and from 17.9% to 18.4% in
terms of the income share of the richest 10%.
34 Angus Maddison (2001, 235) estimates that at the outset of colonisation in 1500 the Ameri-
can population stood at 17,500,000. By 1600 it had fallen to 8,600,000, and by 1700 it was
still well below pre-Columbian levels at 12,050,000.

132 Chapter 3
latter. Neoliberalism has become the prelude to fascism in a world sys-

tem characterised by imperial expansion and the destruction of the
principles of popular sovereignty and democratic order.35
c. The uneven imposition of the principles of competition, trade liberalisation
and exchange rate flexibility. These principles are expressions of state
power in the world-economy. The core countries and above all the hege-
monic state prefer to seize more markets and investment opportunities
than open up their own markets to third parties.36 Multilateral market
liberalisation through the GATT/WTO reflects the outcome of n egotiations
between parties with unequal bargaining power. Dependent countries
thus find it extremely difficult to eliminate the tariff/paratariff barriers
and subsidies restricting their exports. The same compromise (situacion
de compromiso) that consigns their ruling classes to a lower standing in
the international division of labour also subordinates them to the politi-
cal leadership of core country bourgeoisies. This significantly reduces
their own national bargaining power in the world-system.
d. Trade and financial imbalances. Flexible exchange rates do not, as liberals
assume, bring equilibrium and stability to the balance of payments. To
the contrary, they fail to produce currency parity on the basis of the com-
petitiveness of countries’ systems of trade and production, as measured
by their import and export volumes. They do however suffer the impact
of international capital movements, which may or may not rest on sus-
tainable foundations. The hegemonic US state has used conservative
monetary policy to maintain the value of its currency, boost speculative
foreign capital inflows and perpetuate the global economic power of its
bourgeoisie. But it creates monetary parities that are unsustainable over
the medium to long term. Strengthening the dollar in this way has led the
US government into huge current account deficits. It sustains these defi-
cits by means of its financial power, backed by the world’s leading
35 On the pioneering experience of neoliberalism in Pinochet’s Chile, Perry Anderson (1995)

affirms that “Understood properly, Chilean neoliberalism was predicated upon abolishing
democracy and establishing one of one of the most cruel of the postwar dictatorships. But
as Hayek never tired of explaining, democracy had never in itself been one of neoliberal-
ism’s core values. Freedom and democracy, he argued, could easily become incompatible
if the democratic majority decided to interfere with the unconditional rights of economic
agents to dispose of their income and property as they saw fit. In that sense, Friedman
and Hayek were intellectually consistent and did not compromise their principles in their
admiration for the Chilean experience.”
36 Despite this, in accepting neoliberal ideology the United States has been forced to be-
come the first to open up its markets.

c urrency. Countries that applied similar Washington Consensus policies

and pegged their currencies to the dollar suffered much deeper imbal-
ances because their financial power was too precarious to keep managing
the exchange rate in such an unsustainable way.
e. Attacking the welfare state and the historical-moral instruments developed
by workers to reproduce their labour power. This involved passing more
flexible labour laws, opening internal markets up to the free movement of
capital and goods, and preventing citizenship and the democratic order
from expanding into supranational spaces.37
These then are the core features of neoliberalism in the world economy. Neo-
liberalism is a factor in the crisis of the world system, to which we shall now
turn.
6 The Crisis of the Modern World System and Its Dimensions
The crisis in the modern world system is expressed through each of its differ-
ent dimensions: hegemony; political and institutional frameworks; the inter-
national division of labour; ideology; and the relationship with nature. We can
thus describe it as unfolding through crises of (1) hegemony and the interstate
37 Authors such as Samir Amin (1997) differentiate between two laws of value under capital-
ism: that which operates in national spaces, where capital and labour enjoy a similar de-
gree of freedom of movement; and that which develops in the world economy, where they
do not. Amin cites the death of the Keynesian consensus and the Bandung Spirit as the
reason why the world economy’s law of value has projected itself onto national econo-
mies. But although he sheds light on a key feature of the world economy, namely the
difference in volume and speed between the global movement of capital and labour re-
spectively, we do not think that is an adequate basis for claiming that two laws of value
exist. And it becomes even less so given that he incorporates old developmentalist posi-
tions to argue that if these two types of circulation were equalised worldwide then the
world economy would be more balanced and convergent when it comes to the develop-
ment of its constitutent parts, and produce homogeneities similar to those found across
the national spaces of central capitalism.
As we saw earlier, historical capitalism needs an interstate system to serve as a politi-
cal superstructure. This superstructure is the global frame of reference that articulates
national and international spaces and allows the law of value to develop. Clearly, this de-
velopment is affected when nation states exert their power. But the primary cause of in-
equality under capitalism is not how much or how little labour power circulates, but the
productive, commercial and financial monopolies underpinning unequal capacities for
innovation. The movement of labour power acts on this reality – it does not change it per
se.

134 Chapter 3
system, (2) the world-economy and the international division of labour, and
(3) ideology and the environment. We shall now look at each of these in turn.
6.1 The Crisis of Hegemony and the Interstate System

As we saw in Chapter 2, the world system can only become organised if eco-
nomics and politics are asymmetrically related. The interstate system makes
this type of relationship possible. The hegemonic state becomes crucial to
controlling how much autonomy different national groups gain with the for-
mation of juridically independent states. It must organise the systemic interest
on the basis of its own private interests, and present it as the general interest of
the various national ruling classes articulated through it. In doing so it places
real limits on the autonomy of the national realm, which binds national ruling
classes to the international division of labour and the world-economy. We also
saw that hegemony develops through cycles consisting of three phases: hege-
monic ascent, hegemonic crisis and systemic chaos, which is broken by the rise
of a new hegemony following a 30-year war. The hegemonic consolidation that
follows then enables the secular trends of the modern world system to resume
their expansion. This renewed expansion succeeds in overcoming the disinte-
grating effects of the modern world system’s conjunctural tendencies by usher-
ing in a more advanced stage in the development of its structures.
Yet at the current stage of the modern world system’s development the un-
folding hegemonic crisis is unlikely to be overcome by a new hegemony. In a
world economy based on techno-scientific productive forces, it is very hard for
one country or region to concentrate enough productive, commercial, finan-
cial and ideological power over a sufficient length of time to acquire the pro-
ductive forces needed to present its own interest as the general interest. This
reflects the power of diffusion and of the social returns from innovation inher-
ent to technological paradigms rooted in science, culture, communication and
socialisation, and which are accompanied by a sharp rise in the world system’s
‘dynamic density’ (Arrighi and Silver 1999), i.e. the volume, number and quan-
tity of transactions between its different units.
These circumstances will lend the bifurcation in the world system some
very special characteristics as it develops over the next 10–40 years. There is no
successor who can unite with the current hegemon in crisis to and ensure it
enters the next systemic cycle in advantageous conditions. This is quite unlike
when the United Netherlands was succeeded by Britain, or the latter by the
United States. Faced with their own obsolescence, the bourgeoisie in those
states elected, on the one hand, to support a particular competitor as its hege-
monic successor – support which would prove decisive – and, on the other, to
articulate its own interests through the new coalition of powers taking shape.

But this time around it is unlikely there will be an ascendant state to support.
We can see this from the failure of Japan, which in the 1980s was hyped as a
new model for organising both work and institutions generally.
The bifurcation in the economy will therefore raise questions not about the
succession within the confines of the modern world system, but about wheth-
er the system itself will retain its privileges or be replaced by another system. It
will express a polarisation between two camps: one seeking to preserve un-
equal economic, political, and social power and access to productive forces,
and the other seeking to socialise all forms of power and democratise access to
the civilisational forces unleashed by humanity. We can expect the first camp
to unite the leading representatives of the global financial bourgeoisie as they
use their imperialist state apparatuses to forge a coalition in defence of oligar-
chical wealth, and they will approach the various national semi-peripheral and
peripheral bourgeoisies to convince them that their interest is systemic. But
the alternative they offer will not rest on hegemonic power. It will have to crush
self-determination and competition from national spheres and base itself on
imperial power and an imperial outlook. In contrast we can expect the second
camp to consist of the leading proletarian forces in the semi-periphery and the
periphery, who will turn to different popular sectors in the wider world econo-
my as well as non-monopoly segments of the bourgeoisie for support in build-
ing a new world system on democratic foundations.
The drive to articulate interests around building and maintaining a global
system based on oligarchic wealth will almost certainly be spearheaded by the
US neoliberal bourgeoisie. But such a project is unlikely to prosper, as it will be
weighed down by contradictions and clash with the productive forces and
their strong centrifugal pull on power relations. This latter tendency cannot be
contained through violence without endangering the very existence of the
productive forces that behind human life and their core component – humanity
itself. Furthermore, the new international division of labour tends to develop
key features of hegemonic decline in the core itself via the spread of super-
exploitation. As we saw earlier, core nations can only administer the world
economy with some degree of internal consensus. If that hegemonic founda-
tion is weakened then the social and political costs of mobilising the imperial-
ist apparatus increase multiply, reducing the chances of a new generalised war
among national states.
It is very hard for the interstate system to respond to the hegemonic difficul-
ties caused by the US crisis by reinventing itself. The medium to long-term
solutions to these problems would end up reintegrating politics with the econ-
omy and overcoming the structural asymmetry prevalent throughout histori-
cal capitalism. The imperial solution is an unlikely one in our view because it

136 Chapter 3
would be so hard pushed to contain the centrifugal pull on power relations.

But democratic and socialising global frameworks could link to and articulate
this pressure. This would lead to a new world system built on socialist founda-
tions, but whose administrative forms would be quite unlike those we associ-
ate with the experiences of socialism in one country.
The higher the world system’s dynamic density, the more diffuse its relation-
ships of power. That is why the demographic base of hegemonic states has
increased in line with the development of the world economy. Under US hege-
mony, the national state was unable to control the new systemic cycle by itself.
It therefore had to use the UN to develop international political institutions as
additional tools for managing the global system. But although these bodies
grew more powerful over the course of the US cycle, they were still not strong
enough to rival the hegemonic state. They failed to manage the interstate sys-
tem by articulating its local, national, regional and global levels, and instead
the decision-making system employed by the UN and its economic and politi-
cal agencies merely reflected the power of historical capitalism’s core regions.
Economic agencies like the imf and World Bank in particular express the
US’s ability to influence decision-making by vetoing resolutions via a voting
system where the weight of a country’s vote depends on the size of its financial
contribution. This decision-making process means the agencies in question
only widen the structural imbalances in the world economy. According to No-
bel Prize-winning economist Joseph Stiglitz, who headed the US government’s
Economic Advisory Council and was a senior vice-president of the World Bank
during the Clinton years, the unequal balance of power in these institutions
has heightened the contradictions afflicting the world economy (Stiglitz 2002).
He argues that collective action is necessary and justified when there are exter-
nalities, i.e. when certain actions have effects for which there is neither
payment nor compensation. These externalities may be positive, such as the
diffusion of technological and scientific knowledge; or negative, such as envi-
ronmental pollution and recessive beggar-thy-neighbour policies that cause
international economic crises to spread by transferring falling demand to
neighbours. Whether they are positive or negative, externalities mean markets
are not working well and should give way to collective action. By generating
externalities, globalization and the productive forces it generates on such a
huge scale open up plenty of space for a global collective logic that could pro-
mote economic growth by prioritising global economic stability, ecological
balance and technological innovation and devising trade and finance rules
that favour those aims and help eliminate poverty.
Nevertheless, Stiglitz observes that the space for global governance has
not been used effectively. Instead it is limited by the institutional flaws of

international political bodies, which express not global interests but those
of superpower ruling elites. The imf and World Bank are guilty not only of
awarding countries unequal voting rights, but of a technocratic style of
management borne of specialisation. In these organisations it is finance min-
isters and heads of central banks make the decisions. They neglect their orig-
inal purpose – to ensure a stable world economy and remove barriers to its
growth – and act instead in the interests of the international financial com-
munity. The World Trade Organization uses a one-member, one-vote system
and consensus-based decision-making, but global interests are undermined
by institutional factors such as the influence of trade ministers on decisions
and conducting talks and negotiations behind closed doors. (Stiglitz 2002,
214–252). As a result, global governance has failed to keep pace with global-
ization and instead been appropriated by private interests, leading to deeper
global imbalances and the negative externalities that go with them.
imf-led capital account liberalisation may have helped globalize the law of
value, but it has not led to global economic stability. In fact the opposite has
happened, and in capital flow-receiving countries it has diminished their abil-
ity to compete with central countries and led to currency appreciation, current
account deficits and foreign debt. Stiglitz blames capital account liberalisation
for the 1998–99 Asian crisis. He also argues that the countries that subsequent-
ly experienced the most precarious recoveries, such as Indonesia, were those
that continued to apply it. Countries such as China that did not liberalise their
capital account escaped the crisis, and those that reestablished controls on
capital outflows or taxed them, such as Malaysia and South Korea, enjoyed
swift and intense recoveries.
If global governance is fragile when it comes to managing economic mat-
ters, it is also weak in the political sphere. As seen, the United Nations General
Assembly is simply an advisory body to the Security Council, and this in turn
merely reflects the strength of the five great world powers, which as perma-
nent members can veto any decision.
As the world economy grew in complexity, it fostered an irregular, discon-
tinuous, but ever expanding movement for democracy and popular sovereignty
in the modern world system. But this movement was widely restricted to na-
tional spheres, and at the global level the legal and political institutionality
built up by the hegemonic State still prevails. Nor do the more informal at-
tempts at interstate coordination appear to have committed the world system’s
organic core to processes that might lead to truly global administration. This
was clearly illustrated by the joint effort in 2008/2009 to protect fictitious wealth
creation, which has the United States and the dollar at its core. Previous hege-
monic transitions show there is never any serious reform of the institutional

138 Chapter 3
order during a hegemonic crisis. Instead, new institutional foundations can

only be laid after entering and overcoming a period of systemic chaos.
The juridical and political crisis of US hegemony threatens the very bases of
the modern world system because it challenges the oligarchic foundations of
international power. The years ahead should see social movements and emerg-
ing peripheral/semi-peripheral nations striving to democratise international
political institutions and create global mechanisms representative of all
humanity to manage the world economy. We can already see this process un-
derway in the World Social Forum and similar settings, in the emergence of
globally coordinated nationalisms and regionalisms, and in mass protests
against a revived US imperialism (Seoane and Taddei 2001; Ceceña and Sader
2002). As we shall see, this is the challenge presented by the transition from
western civilisation to a planetary civilisation.
6.2 The Crisis of the World Economy and International Division of

Labour
The crisis of the world economy and the international division of labour is
laid bare by historical capitalism’s deepening productive vulnerability. This
vulnerability is expressed in the contradiction between the world econo-
my’s low rates of growth – especially in the neoliberalised periphery and
semi-periphery – and the potential for ascent and growth unshackled by scien-
tific and technological diffusion.
As we have seen, the globalization of the law of value has led to monopolisa-
tion and the destruction of productive forces. This destruction takes place with-
in the world system and limits the impact of the economic growth brought
about by technical progress. It has placed particular pressure on dependent
countries in the grip of neoliberalism. Less competitive than others, they be-
came the target of sweeping denationalisations and internal market restric-
tions by super-explotation. Their economic growth rates suffered especially.
Trade and capital account liberalisation severely deepened their trade and cur-
rent account deficits. Their per capita economic growth plunged to sub-world
economy levels because they were forced to use their trade surpluses to finance
balance of payment and capital account deficits. Periods of growth coincided
with capital inflows, although they were not sustained, and economic cycles
intensified. International agencies used financing packages to try and cushion
the effects of this intensification, but the crisis was so severe it affected their
own budgets and so financially their ability to confront it was limited. This limi-
tation was compounded by the hegemon’s current account financing needs,
which restrict world-economic liquidity, the public deficits promoted by the
neoliberals, and the Third Way policy of committing fiscal surpluses to the fi-
nancial sector.

Faced with such constraints, peripheral and semi-peripheral countries have

strengthened national and regional development projects that prioritise inter-
nal factors of production and the workforce in particular. This trend is clearest
in Asian countries such as China, South Korea, Taiwan and India, which focus
on skills investment and increasing the value of labour power. They restrict the
presence of incoming foreign capital largely to the export sector. They also
hold down the value of their currencies in order to generate trade surpluses.
This is done to help access more advanced technology and have a way to fund
it. Foreign technology supplements rather than replaces domestic efforts to
develop science and technology. These efforts include government support for
scientific integration (by sending students to universities in the central coun-
tries); social reforms (income distribution, massification of primary and
secondary education and putting limits on excess consumption, which has in-
creased levels of savings and equity), and a commitment on the part of na-
tional financial sectors to industrial and technological development in order to
limit interest rate levels and thereby boost economic growth (Amsden 1989;
Hirano 2001b; Maddison 1995, 1998, 2001; Medeiros 1999; Coutinho 1999).
The results have been successful. But whereas South Korea and Taiwan can
to an extent be described as examples of development by invitation by virtue
of the generous international aid they received during the Cold War, the same
cannot be said of China, where internal planning in fact largely preceded inter-
national integration. In the masterful Adam Smith in Beijing (2007), Giovanni
Arrighi describes China’s emergence as a process of development without dis-
possession consisting of the following steps. Firstly, between 1949 and 1978 the
socialist revolution raised education, health and consumption levels. Then
from 1979 on organisational reforms were introduced as a political and admin-
istrative response to the Cultural Revolution’s attack on the bureaucracy. At
their heart lay the creation of Township and Village Enterprises (tves). Owned
by local inhabitants rather than state or private interests, tves dramatically
decentralised and socialised the way business was administered. The internal
dynamics generated by the tves then led to Chinese diaspora capital – by now
a beneficiary of technology transfer and development-by-invitation credits –
being granted access to the mainland. Finally, Western capital was also allowed
in and directed towards the export sector.38
38 Arrighi (2007) sees the tves as the key to establishing a model of accumulation without
dispossession, which does not separate the worker from ownership of the means of pro-
duction. The tves have tended towards using labour intensively, and this has increased
competitive pressure and the consumption of public goods, since more than half of their
profits are ploughed back into modernising enterprises or local circuits (schools, clinics,
social welfare, infrastructure and technological services).

140 Chapter 3
In these examples from East Asia, the value of labour power typically rises
as it becomes a more competitive international asset and the State protects the
national productive apparatus from external competition.39 The higher quality
and value of said countries’ labour power attracts foreign capital interested in
having a competitive and cheap commodity in international terms. As we saw
earlier, the modern world system divided the world into regions and ensured
most of the wealth produced went to the centre. Consequently, the working
class in core countries enjoyed far higher per capita incomes than their coun-
terpart in semi-peripheral and peripheral nations. But when peripheral coun-
tries manage to close the skills gap between the two working classes through
policy measures, they vastly improve their ratio of productive capacity to in-
come and attract foreign capital in search of higher rates of profit than those it
can earn in the core. In taking this course of action and at the same time pro-
tecting their own scientific and technological capacity, peripheral nations
forge a developmental trajectory that reduces centre-periphery disparities and
enables the latter to appropriate the social returns of international innova-
tions by breaking with super-exploitation. The more this process deepens and
spreads to the periphery of the Western world the more it sets in motion a dy-
namic that threatens the international division of labour underpinning his-
torical capitalism, given the limitations of central capitalism when it comes to
fully incorporating the techno-scientific revolution.
Peripheral and semi-peripheral countries face a choice in this context. One
option is ever-deepening dependency combined with intensified super-
exploitation and marginalisation from the technological frontier. Alternative-
ly, they can choose the kind of national and regional development that
breaks with dependency and super-exploitation and brings them closer to the
39 According to Angus Maddison (1995), the average years of education per person aged
15–64 rose between 1950 and 1992 as follows: in China from 1.6 to 8.5; in India from 1.3 to
5.5; in South Korea from 3.3 to 13.5; in Taiwan from 3.6 to 13.8; in Japan from 9.1 to 14.8; in
the US from 11.2 to 18; in the UK from 10.8 to 14; in France from 9.5 to 15.9 and in Germany
from 10.4 to 12.2. In Latin America the increase was more modest than in Asian countries –
in Brazil from 2 to 6.4; in Mexico from 2.6 to 8.2; in Argentina from 4.8 to 10.7, and in Chile
from 5.4 to 10.9. Absolute figures do not always reflect the higher quality of Asian educa-
tional systems compared to those of Latin America, which has become better known
through the results of the educational Olympics between students with the same number
of years of formal schooling. As a result, Asian rates of labour productivity (gdp per hour
worked) have outstripped those of Latin America, increasing year-on-year between 1973
and 1992 by 4.1% in China; 5.2% in South Korea; 5.3% in Taiwan; 2.8% in India; 0.9% in
Brazil; 0.5% in Mexico; 0.5% in Argentina and 1% in Chile. Central countries also fared
worse than Asian ones in the same period, with productivity rising year on year by 1.1% in
the US; 2.2% in the UK; 2.7% in France and 2.7% in Germany.

t echnological frontier, enabling them to take advantage of the externalities of

techno-scientific diffusion.
The countries best placed to lead this rupture with neoliberalism’s interna-
tional division of labour are those with a continental reach, such as China, In-
dia, Brazil, Russia and South Africa. Since 2003, China’s projection in the world
economy has articulated whole swathes of the periphery and semi-periphery
through a new axis of development, which has minimised and neutralised
neoliberalism’s deleterious impact on its trade balances. Accumulation with-
out dispossession brings high rates of investment and links technological in-
novation to necessary consumer goods and their inputs. This both increases
international demand and prices in respect of the latter whilst benefitting the
peripheries that export them. Accumulation without dispossession confronts
the logic of historical capitalism, in which technological innovation is focussed
on the luxury consumer goods sector in its pursuit of extraordinary surplus
value. As a result, the world market is centered in 25% of the world’s popula-
tion, among them part of the inhabitants of the US, Western Europe, Japan,
Canada, Australia and New Zealand, as well as peripheral and semi-peripheral
elites. In sum, post-capitalist elements have combined with historical capital-
ism, giving rise to both a complex world economy that links three major social
formations – central capitalism, dependent capitalism and those of a post-
capitalist type – and a historical bifurcation in the direction of a new world
system.40
6.3 The Ideological and Ecological Crisis

Wallerstein observes that capitalist civilisation was built around the individu-
al, who is seen as the subject of history. In historical capitalism this centrality
of the individual is expressed in two complementary ways: through universal-
ism, which stands for the essential homogeneity of humankind and is distrust-
ful of privileges and inequalities; and through ethnocentrism, racism and
sexism, which stress the differences between human beings and either qualify
40 Note to the English edition: China’s ascent in the world-system has involved it becoming
ever more closely articulated with a capitalist world economy. This could make it hard to
maintain the principle of accumulation without dispossession. Between 1994 and 2008
China’s economy was heavily marked by the privatisation of eams (albeit alongside
strong social commitments), the reduction of public land, the expansion of the private
labour market and widening inequality. However, the government has kept a robust pub-
lic enterprise and joint-venture sector under tight state control to guarantee foreign tech-
nology transfer and power over currency convertibility and most financial assets After
2008 it refocussed its economic policy on the internal market, promoting public spending
aimed at reducing inequality and using the brics and its policies towards peripheral
countries to build up a new axis of global alliances.

142 Chapter 3
or dismiss the idea that they are equal. Universalism explains differences in
terms of differentiated performance in a meritocratic system with equal op-
portunities for all. Yet capitalism has always difficulties imposing such a sys-
tem. Universalism was originally needed as an ideology to promote the prin-
ciple of competition, which underpins the law of value, and it began to find
expression as soon as monopolies were consolidated. Nothing has developed
the competitive principle more than the growth of big industry and the tech-
nological monopoly that goes with it. The greater the deviation away from the
law of value, the more the principle imposes itself. Capital aims to concentrate
surplus value, not disperse it among a multitude of competitors, and so it re-
sorts to anticompetitive measures whenever there is any uncertainty about the
outcome of competition.
To stave off the threats hanging over accumulation, capital avails itself of
ethnocentrism, racism and sexism. Unlike universalism, which advocates a
system of equal opportunities, these ideological forms justify inequality by
claiming that certain social groups are culturally or biologically ‘inferior.’ By
imposing unequal rights, capital brings down the value or price of labour pow-
er and shields itself from the social pressures of competition and equality. The
most successful model of 19th century capitalism was not the French one –
sparked by a revolution that mobilised the peasantry around the ideals of lib-
erty, equality and fraternity – but the British version, where the bourgeoisie
joined forces with the aristocracy and the conservative forces of the Holy Alli-
ance to dilute the French Revolution’s radical principles.
Wallerstein argues that the ideological hallmark of capitalist civilisation
was always its zigzagging movement between universalism and inequality in
order to allocate a position to individuals and social groups. In times of politi-
cal and hegemonic stability these two movements complemented one anoth-
er. Universalism, which encourages change and transformation, justified or
provided a road map for the rise of groups and individuals, whereas ethnocen-
trism justified inequality.
That complementarity of universalism and inequality was shown by the
way capitalist civilisation proclaimed the universality of the ideology particu-
lar to the hegemonic power and imposed a Eurocentric and Anglo-Saxon
cultural model. According to the theory of comparative advantage and the so-
ciology of modernisation, if more backward regions wanted to replicate in-
come levels or social, political and ideological models in the central countries,
then they would have to copy the type of advanced and universal behaviour
already prevalent in the core.
When the hegemonic power enters into crisis, this complementary relation-
ship between hegemonic particularism and the universal risks falling apart.

The capitalist order can only be stabilised by rearticulating the two. Universal-
ist discourse seeks new forms that could endanger historical capitalism and
questions the monopoly rule and unequal opportunities inherent to capital-
ism. As Wallerstein points out, a meritocratic discourse can seriously destabi-
lise any form of domination by a class or social group on account of its radical
commitment to equal opportunities.41 Its unilaterality is unsustainable under
capitalism. Meanwhile, ethnocentrism is also breaking free from its commit-
ment’s universalism, threatening to become a predominantly racist and sexist
ideology and cut its links with the competitive order. This trend presents a risk
to the capitalist system if it becomes dominant globally.
The current hegemonic crisis has placed universalism’s relationship with
the United States and historical capitalism in mounting jeopardy. The ideologi-
cal crisis of neoliberalism is proof of this. Once the ideology of the Washington
Consensus and the end of history, neoliberalism now looks like a creed of dis-
sension and privilege and a threat to humanity. Despite efforts to stop it, a bi-
furcation now appears to be taking place, with universalism pursuing a new
post-hegemonic and post-liberal version of equality whilst ethnocentrism
looks for ways to deepen inequality. But as we have argued, just because neo-
liberalism is in crisis does not mean it is defeated. If the left continues to hesi-
tate about superseding neoliberalism then it could soon face a crisis of its own,
and that would leave the path clear for fascism to appear as an alternative to
the chaos sown by the ideological crisis.
The environmental crisis is an aspect of the capitalist crisis closely related to
its ideological dimension. Capitalist civilisation sees individuals as indepen-
dent beings who use nature to satisfy their wants. Nature is objectified and is
41 “Furthermore, it is said, not only is meritocracy economically efficient but it is also politi-
cally stabilizing. To the extent that there are inequalities in the distribution of reward in
historical capitalism (as in prior historical systems), resentment of those who receive
greater rewards by those who receive fewer is less intense, it is argued, because its justifi-
cation is offered on the basis of merit and not on the basis of tradition. That is, it is
thought that privilege earned by merit is somehow more acceptable, morally and politi-
cally, to most people than privilege earned by inheritance. This is dubious political sociol-
ogy. The exact opposite is true in fact. While privilege earned by inheritance has long been
at least marginally acceptable to the oppressed on the basis of mystical or fatalistic beliefs
in an eternal order, which belief at least offers them the comfort of certainty, privilege
earned because one is possibly smarter and certainly better educated than someone else
is extremely difficult to swallow, except by the few who are basically scrambling up the
ladder. Nobody who is not a yuppie loves or admires a yuppie. Princes at least may seem
to be kindly father figures. A yuppie is nothing but an overprivileged sibling. The merito-
cratic system is politically one of the least stable systems. And it is precisely because of
this political fragility that racism and sexism enter the picture.” (Wallerstein 2000a,
347–348)

144 Chapter 3
no longer seen as a biodiverse, life-generating system with its own laws of

reproduction. Capitalism introduces an economic rationale and strives to
cheapen the value of products by raising productivity, meaning more goods are
produced with less labour. Income polarisation encourages greater emphasis
to be placed on quantity. Natural resources come under pressures deriving
from consumerism and poverty. The more the hegemon exerts its cultural
power, the more these pressures mount up and natural resources are brutally
super-exploited. The pace of this super-exploitation usually outstrips their re-
generation. Neoliberal globalization takes this logic to its ultimate conclusion,
and ecological systems suddenly collapse as they become far less biodiverse
and therefore unsustainable.
The ecological crisis cannot be resolved by assuming the costs of contami-
nation: the damage done to the environment is incalculable, and capital will
always oppose such a solution because of its depressive effect on the rate of
profit. It can only be tackled within a new civilisational framework, which gen-
erates new ways of thinking under the auspices of a new world system.
7 Alternatives to the Modern World System
The modern world system is on a crisis-ridden trajectory and heading towards

systemic chaos. The crisis has various dimensions: it is a crisis of hegemony, of
the world-economy’s development, and of the international division of labour
into central, semi-peripheral and peripheral zones. It is also a political, institu-
tional, ecological and ideological crisis, and the secular trends of historical
capitalism cannot roll it back.
Since 1994 we have experienced a new Kondratiev A-phase that has coin-
cided with the crises of the modern world system and of hegemony. This com-
bination lends it certain characteristics, namely that whilst it is concomitant
with financialisation and the large-scale destruction of capital and jobs, it also
sends international investment flows in the direction of greater profitability.
This has confused many analysts for whom financialisation is a unilateral trend
that shifts the dynamism of capitalist investments towards investments regu-
lated by interest rates – most notably national debts. In fact, that tendency has
run its course. It was limited by the very competition underpinning the inter-
state system, which made it impossible to maintain Reagan’s policies of finan-
cialisation and unilaterally strengthening the dollar. The neoliberals returned
to power upon the election of George W. Bush, but at a moment in the cycle
that limited the expansion of national debt and subordinated it to productive
investments. However, the need to maintain extraordinary profits and generate

wealth through private markets as opposed to the real economy triggered a big
new wave of state intervention starting in 2008–2009. This intervention is not
about ensuring financialisation prevails over the productive sector, but rather
adapting it to the needs of the latter, in so far as the conversion of surplus value
into extraordinary profit is limited by the stage reached in the development of
capitalism’s secular trends, and so can only be realised via fictitious valorisa-
tion and state coercion. To that end the state transfers its earnings to big oli-
gopolies that can guarantee the liquidity of its investments, cut interest rates,
expanded credit, and seeks to return growth to the central economies and the
world economy in general.
As noted, this Kondratiev cycle will probably be shorter and see less intense
economic growth than the previous one, especially in the decaying centres and
the geoeconomic space under their hegemony. Taking the length of the British
hegemonic crisis as our yardstick, the expansive phase of the current Kondra-
tiev cycle should last about 20 years. Since 2008–10 it has been transitioning
from prosperity to maturity, energising the world economy’s antisystemic forc-
es in the process. The more those forces advance during the Kondratiev cycle’s
mature phase, the more they will develop politically and equip themselves to
survive the systemic chaos set to succeed the expansive period. During the
chaos phase, everyday activity is freed from the structural prisons of the longue
durée and even the best efforts to organise it come to little. In contrast, when
systemic tendencies are at their most powerful the constraints on anti-systemic
activity irreducibly limit any concentrated effort to produce a rupture.
Chaos represents a time of freedom from predeterminations. In such peri-
ods the temporal dimensions of the conjoncture, l’evenement and structure are
levelled, allowing new patterns to establish themselves in one single system.
These new patterns either ensure the system’s cyclical continuity or else do the
opposite and replace it with a new one.
The decline of the modern world system compels us to examine the sys-
temic choices on offer.
Immanuel Wallerstein (1995b) outlines three alternatives beyond the de-
mise of historical capitalism: neo-feudalism, democratic fascism and socialism.
By neofeudalism he means a world of separate sovereignties and of regions
that are autarkic but ruled by local hierarchies. This resembles the long-term
alternative posited by Samuel Huntington (1996) as a means of preventing
Western civilisational decline from ending in a ‘clash of civilisations’. Demo-
cratic fascism is understood by Wallerstein as the imperial alternative origi-
nally envisaged by Hitler: a world divided into an upper and a lower caste, with
the former enjoying highly egalitarian distribution. Finally, socialism redraws
the limits of existing State frameworks and articulates them with radically

146 Chapter 3
democratic institutions of global governance to create a planetary system. The

socialist alternative redefines relations between the universal and the particu-
lar by ensuring the two are closely interpenetrated. The introduction of global
frameworks should not foreclose the movement towards increased diversity
but rather emerge from it through a far-reaching democratisation of political
and social relations.
In The Long Twentieth Century, Giovanni Arrighi also posits three potential
outcomes. The first is an imperial solution which appropriates economic re-
sources by force. Another would see Asian capitalist enterprises using network
systems to wean themselves off state protection. This would lead to a greater
emphasis on the market and an end to monopolistic Braudelian capitalism.
The third possible outcome is that systemic chaos continues to prevail until a
new post-capitalist system is established.
Finally, authors such as Paul Hirst, Anthony Giddens, Joseph Nye and Robert
Keohane argue in favour of developing regimes that strengthen international
institutions to the benefit of a hegemony shared between the world’s leading
political and financial powers.
Let us now give our own assessment of these different scenarios. The impe-
rial/fascist alternative has two main drivers. Firstly, when the hegemon dis-
rupts the interstate system in order to contain the diffusion of productive,
commercial, financial and cultural power relations, which undermines its
power and threatens historical capitalism’s international division of labour.
The hegemon is also impelled to do this by the need, driven by the pendular
swing towards territorialism, to control strategic material resources (oil, lithi-
um, strategic metals, biodiversity). The second driver is the reaction of certain
sections of the national bourgeoisie and middle strata to the denationalisa-
tions and worsening social and economic relations engendered by the advance
of neoliberalism. This response is mainly represented by European fascist
movements, but we see it increasingly in the United States too. Adding to this,
sections of the European proletariat could end up blaming foreigners and im-
migrants for social instability and joining the fascist chorus of hate, should
European integration fail to provide an effective response to super-exploitation
and social crisis. In the US, Obama’s victory briefly put such forces on the de-
fensive, but they began to reorganise following his failure to tackle high
unemployment.
It would be extremely difficult for the imperial/fascist alternative to create a
new world system. As noted, its main problem would lie in preventing the dis-
persal of power relations by the centrifugal forces of the world economy. We
saw in Chapter 2 that Wallerstein sees the crisis of feudalism and its overcom-
ing through the creation of the modern world system as the outcome of a pact

between feudal elites that sought to recreate a system of domination by basing

the private appropriation of the economic surplus on other models. He cites
this precedent to suggest that the elites can recreate the world system on new
hierarchical foundations. But his analysis fails to account for the developmen-
tal tendencies of the productive forces, which point towards increasingly
socialised power relations and privilege the subjectivity that the fascist alter-
native must confront. Fascism is based on the radical destruction of the politi-
cal freedom lying at the very heart of the productive forces – the development
of subjectivity.42 Its consolidation on a global scale would, ironically, lead to
the productive forces being so utterly destroyed as to wipe out the whole of
humanity. Fascism is also beset by another contradiction: its own internal ten-
sions. In regions in danger of slipping down the world system’s hierarchies of
power, the fascist movement is anti-imperialist and tends to oppose violations
of national sovereignty and political centralisation, whereas the fascist solu-
tion would be to re-establish the archaic empire form, but on a worldwide
scale with no historical precedent.
The shared hegemony envisaged by various authors would also struggle to get
on a stable organisational footing. It represents more a defensive response by
leading economic powers to the dispersal of power relations, and is unlikely to
lead to the unity of interests needed to breathe new life into historical capital-
ism. As Marx observed, capital pursues the extraordinary surplus value that sup-
ports the introduction of technological innovations. Transnationalised power
relationships would seriously undermine the global competitive strategies used
by the different national bourgeoisies, who seek to protect the sovereignty of
their states as a source of differential power when they compete on the world
stage. Furthermore, the defensive nature of shared hegemony would make it
hard to block the ascent of new competitors in the world economy for long.
The neofeudalist or ‘multi-civilisational’ alternative (Huntington 1996), in
which regional leaderships resolve their conflicts internally, is also unlikely to
materialise in the face of opposition from a hegemon and its allies all hellbent
on worldwide territoriality. In the present stage of capitalism we are unlikely to
see the world system fragmenting into self-referencing regional systems be-
cause that would come up against the globalising nature of the productive
forces. Some such disconnections may well play a role in the broader reorgan-
isation of the modern world system, given that the latter is characterised by
anarchy and unequal and combined development that produces huge eco-
nomic, political, social and ideological differences between regions. But they
42 On the entropic nature of fascism and its radical negation of political freedom see Polanyi
(2007), the final chapter especially.

148 Chapter 3
cannot usher in a new systemic reality by themselves because they are by na-
ture too circumscribed and therefore too weak to overturn historical capital-
ism’s new territorialist agenda. Only the mobilisation of globalizing forces can
stop destabilising ventures in their tracks.
Arrighi’s hypothesis that network-type organisation will make firms less re-
liant on state protection also seems rather implausible. As we have shown, this
type of organisation did not lead to enterprises severing their national connec-
tions. Despite the prevalence of technological agreements and international
mergers and incorporations in the world economy, their research and innova-
tion facilities are still concentrated locally. Furthermore, government interven-
tion has increased dramatically under Asian capitalism.43
In our view there are only two plausible scenarios. Either the world system
will descend into an endless chaos that threatens human existence, or a social-
ist world system will be built, becoming the backbone of a planetary civilisa-
tion. These bifurcating alternatives are consistent with the pattern of recurring
chaos established by the modern world system. As Arrighi, Silver and Waller-
stein demonstrate, periods of chaos have historically formed part of a cyclical
movement of successive hegemonic states, which, until now, has allowed the
modern world system to reorganise. Despite the anarchy, violence and horror
they bring, such periods allowed historical capitalism to expand. The chaos
may have led to global wars as a result of organisational bifurcations splitting
the modern world system into competing state projects, but it also restrained
imperial ambitions and developed the interstate system. This meant political
and military conflict would end with the system’s organisational axis shifting
from a decadent state to one that was built on stronger productive, demo-
graphic, financial and political foundations and was more strategically located
in geographical terms.
The coming systemic chaos is however unique in that it will engulf the
modern world system and historical capitalism rather than one particular he-
gemony. The bifurcation likely to emerge from this chaos will have its own
characteristics, because the nation-state as an entity capable of concentrating
world-economic organisation appears to be on the brink of permanent crisis.
This bifurcation will drive conflict not between different state projects disput-
ing hegemony but between one set of forces out to save historical capitalism
and another seeking to go beyond it by forging a new planetary civilisation.
43 Using government expenditure as our measure of state intervention, we find that be-
tween 1985 and 2008 Korea it rose from 18.8% to 30.9% of gdp in South Korea, and from
29.4% to 36.4% of gdp in Japan. Higher tax revenues are another indicator of greater
government involvement in the economy, and from 1985 to 2008 their share of gdp rose
from 17.6% to 35.7% in South Korea and from 28.8% to 35% in Japan (oecd 2002, 2010).

We saw that in the confrontations that took place during past periods of
systemic chaos the states who were defeated in their quest for domination
went on to develop markedly imperial and interventionist features. Such was
the case of Napoleonic France, whose expansionism on the European conti-
nent violated Westphalian principles. Its interventions were progressive in as
much as they took on Europe’s most feudal political forces. But at the same
time it imposed much tighter political controls at home and did away with the
universal suffrage introduced in the most radical moments of the French Revo-
lution. The expansion of historical capitalism and the destruction of feudal
powers in the world system would subsequently empty its interventionism of
any progressive content and lend new imperial projects like the fascist Nazi
Germany an avowedly reactionary character.
In the period ahead of us, projects aiming to salvage historical capitalism
will try and use the hegemon to articulate a whole range of oligarchic forces
through increasingly fascistic forms. This is clear from the reactions of the
George W. Bush administration to the 11 September 2001 attacks and its use of
foreign policy to drive an ideological offensive that did not end with the end of
this presidency, leading to fascist policies and regimes being imposed in pe-
ripheral countries such as Iraq, Libya and Palestine. We examine this further in
Chapter 4. As noted, whilst a fascist project is unlikely to succeed in replacing
the modern world system with its own new order, there is still a danger it might
block the progress of the planetary civilisational project. Should that occur, the
chaos would deepen, and humanity would suffer a series of vicious confronta-
tions between anti-imperialist forces incapable of taking the world system to a
higher level – who will find their expression in national chauvinism and eth-
nic/religious fundamentalism – and the fascist forces of the hegemonic na-
tions, who will be incapable of re-establishing any kind of order.
Such a prospect makes the planetary civilisational project absolutely im-
perative. The concept of a planetary civilisation was developed by Theotonio
Dos Santos to describe how a plurality of cultures and civilisations could all
converge in peaceful coexistence around a single planetary system. Such a
civilisation would require radically democratic international political institu-
tions to articulate the global with historical, economic, social and cultural plu-
ralities. It should not be considered unfeasible just because of the potentially
divisory effect of the different cultures and civilisations present throughout
human history.44 A planetary civilisation would integrate and preserve the
44 This is the perspective advanced by Samuel Huntington (1996). Immanuel Wallerstein’s

understanding of civilisation on the other hand manages to avoid the equivocations in
Huntington’s loose definition of it as a theoretical mosaic (2000b, 147–185). Wallerstein

150 Chapter 3
identities of cultural and civilisational particularities rather than wipe them

out. It is a project founded on integration and diversity. It does not pursue in-
tegration of the hierarchical kind, where a small fraction of humanity governs
the rest, but instead aims to promote diversity and conditions favourable to its
development by guaranteeing all peoples and individuals the right to access
the sum of humanity’s scientific, technological and cultural achievements.
This new civilisation brings with it the realisation of Marx’s social individual,
who develops his individuality through his enjoyment of the lasting freedom
to appropriate man-made productive forces. Its ethical and organising princi-
ples are liberty, equality, solidarity and peace. Together, these principles form
the basis of an ecologically sustainable civilisation.
Planetary civilization requires a shift to the third type of relationship be-
tween man and nature described in Chapter 1, in which economics and the
struggle against scarcity are no longer the priority. It should create living condi-
tions which value quality and use values over quantity, abstract labour and ra-
tionalisation. In these conditions, Man is understood as part of his ecological
environment. The social individual is characterised by natural as well as cul-
tural wealth. Negentropic policies in support of living ecological systems re-
quire greater equality and the full democratisation of political, social, cultural
and economic relations. The democratisation of sensibilities, preferences and
meanings multiplies the number of ways the ecosystem is used and expands
the diversity of the components (biotic and abiotic resources) underlying its
basic structure and productivity (Leff 2001, Mészáros 1995).
As Dos Santos points out, peace is a value that must be at the heart of any
attempt to build a planetary civilisation. Such a civilisation cannot emerge
from a war of mass destruction with the imperialist powers – that would sig-
nify nothing less than the triumph of chaos and genocide. Peace should be
used as a tool to foster integration and cooperation between different groups
of people, a means of combining wars of position with wars of movement to
bring about substantive political inflexions. Such cooperation is needed to
throw a spanner in the works of the imperialist state machinery and go be-
yond alternative of war (Santos and Senechal 1985, 1996a; López Segrera
1998b). Crucially, this means forging transnational solidarity between national
shows that civilisation does not exist in a static mode but involves process and move-
ment. It is a given group’s interpretation of its identity, which includes hierarchising and
excluding multiple aspects of a long and complex historical period. This construct is
heavily influenced by the kind of political leadership given to the group. Civilization does
not represent the weight of the past stunting the development of certain peoples, but is
primarily a creative process that both interprets and modifies the past and finds a unique
way to articulate it with the present, thus giving rise to a new history.

populations to prevent them from lining up behind imperialist and chauvinist

leaders who try and turn struggles within the world system into conflicts be-
tween nation-states. This approach is quite feasible and, as we noted earlier,
already has a successful precedent in Vietnam. The anti-imperialist struggle
against the Iraq war and the social and political movements engaged in inter-
national solidarity provide further proof of its potential.45 For struggles to ad-
vance they must be articulated at every level – local, national, regional and
global. This will not destroy each site of struggle’s relative autonomy but will
rather enable ever-greater interpenetration and synergy. In the process local,
national, and regional struggles will assume an increasingly global form, and
vice-versa.46
The modern world system will not be superseded in one attempt. There may
be a transition phase lasting from 2015/20 until 2045/50, during which the
aforementioned articulations shore up systemic foundations until new ones
are forged. In the next chapter we discuss the crisis of US hegemony and with
it the conditions that make such a transition possible.
45 Obama’s triumph over the Republicans expressed the symbolic victory of this transna-
tional perspective, regardless of whether his government really represented a gain for
social movements.
46 In response to neoliberalism we propose a socialism rooted, in Octávio Ianni (2004: 35)’s
words, “in social diversity and inequality, not just locally, nationally and regionally, but
above all globally; and rooted too in a critical evaluation of socialist experiences in differ-
ent nations and in China and Cuba today, or indeed the many philosophical, scientific
and artistic contributions to it from the East, the West, Africa, Latin America, the Carib-
bean, Oceania, North America and the various Europes.”

Chapter 4
The Impasses of US Hegemony: 21st Century

Perspectives
1 US Hegemony at the Crossroads: Main Theses1
Hegemony is a crucial theme in the analysis of contemporary international

relations. It plays a core role in the development of the modern world
system, which is led by historical capitalism. We saw that the modern world sys-
tem rests on a world-economy that articulates the different political units cen-
tred on national states through capital and commodity flows. Its architecture
furthermore allows the economy to free itself from political control by virtue
of its global reach. But the lack of a central political institution brings with it
the risk of anarchy. Hence a political entity is needed to control competition
among states and maintain their coordination in order to define the economic,
legal, political and military rules that will ensure the functioning of the capital-
ist world economy. That entity is the hegemonic state.
We also noted that for a state to become hegemonic it must exercise inter-
national leadership of a kind strong enough to impose a general and systemic
interest on different national policies. But there are limits to that leadership
beyond which it becomes a barrier to capital accumulation, because the capi-
talist world-economy is not geared towards building world empires that restore
the rule of politics over the economy. Hegemonies must therefore be continu-
ously built up and destroyed, thus marking a cyclical pattern in the modern
world system.
In its initial expansive phase, the hegemonic state concentrates its interna-
tional leadership in the productive, commercial, financial, ideological and
military spheres. In its second phase, one of crisis, the foundations of its lead-
ership begin to deteriorate. But this is not a uniform process: at first it affects
its productive and commercial base, and only later its financial and ideological
domination. Likewise, the point at which military dominance starts to decline
varies widely from one hegemony to another.
1 The translation of Sections 1 and 2 of this chapter draws on Timothy Thompson’s translation
of the author’s earlier article “The Impasses of U.S. Hegemony: Perspectives for the Twenty-
first Century” (Martins 2007) – Trans.

The Impasses of US Hegemony 153
Whereas in its expansive phase the hegemonic state plays a virtuous role in
the world system by helping develop its productive forces, during its crisis
phase it begins to hinder that development. It is commonly agreed that in 1950
we entered a systemic period of US hegemony, but what stage of that hege-
mony are we at now, and how does it affect the world system?
Because of their bearing on prospective analysis and on the kind of alterna-
tives to neoliberalism that social movements might formulate, these questions
have sparked one of the most crucial debates in the social sciences today. There
are many different positions, but they can be divided into two main groups:
one holding, as we do, that the US is currently at an advanced stage of hege-
monic crisis; and the other that US hegemony is stronger than ever and in an
expansive phase.
In this chapter we will first present our perspective on the issue before fo-
cusing on the debate with other positions in the last section. We argue that
since the 1967–1973 period the United States has been in hegemonic decline.
Despite maintaining its financial, ideological and military hegemony, it has be-
come increasingly vulnerable due to public and current account deficit pres-
sures on the dollar; the crisis of neoliberal legitimacy; the exhaustion of US
imperialism (revived after 11 September 2001),2 and the political and military
reactions to the latter, which threaten to raise the world-system’s protection
costs to unprecedented levels. To locate the trajectory of US hegemony in the
world system we must bring the longue durée into our analysis of the conjunc-
ture. That means taking into account analytical instruments discussed earlier,
which we can summarise as follows:
a. Systemic cycles: a concept developed by the world system school in au-
thors such as Arrighi, Silver and Wallerstein. They organise systemic cy-
cles into hegemonies, which in turn are divided into phases of expansion
and crisis. In times of crisis, the hegemon draws on its financial power to
keep leading global accumulation. But that strength cannot prevent the
decline of its productive and commercial bases. Hegemonic disintegra-
tion gives way to a stage of systemic chaos, and with it a bifurcation as
new power structures compete for hegemony. In historical capitalism
2 We make a distinction between the concepts of hegemony and imperialism. We understand

hegemony as global economic rule by capitalist centres using consent and ideological per-
suasion, with military coercion either used actively or as a deterrent, depending on circum-
stances. In imperialism however this rule is achieved through direct political control at the
expense of self-determination and the sovereignty of peoples and states. Despite these differ-
ences, hegemony and imperialism are not necessarily antagonistic as they have actually
complemented one another throughout the history of capitalism, each performing a differ-
ent role in the organisation of the world economy.

154 Chapter 4
this process culminates with thirty-year wars. A new configuration of

power then emerges from these wars to rebuild the world system on fresh
foundations. The system then expands by broadening its reach and the
extent of interaction between its constituent parts.
b. Kondratiev cycles: linked to technological and organisational revolu-
tions, Kondratiev cycles usually correspond to 50–60-year periods divid-
ed into A-phases (expansion) and B-phases (economic crisis).
c. Civilisational crisis: associated with a crisis in the mode of production.
The latter makes the ruling class overuse political means to appropriate
the surplus, depending on the State to do so. This happens when the rul-
ing class finds itself struggling to extract a surplus through its relations of
production. In feudalism, the technological revolution raised productiv-
ity and promoted exchange in the countryside, bringing serfdom to secu-
lar crisis. This process converted the nobility into the State and led to
absolutist regimes supported by the commercial bourgeoisie. Under cap-
italism, the wage system is under threat from automation – an idea set
out by Marx in Capital and the Grundrisse and later taken up by Richta
with his theory of the techno-scientific revolution. Both saw automation
as the driving force behind the falling rate of profit tendency. Since the
1970s, the automation process has gone global, leading to both higher un-
employment and more state intervention in aid of big capital.
The trajectories of US hegemony and the world system in the decades ahead
should be understood as flowing from a combination of these three long-term
trends. We would argue that in 1994 the expansive phase of a new Kondratiev
cycle began to develop in the United States, extending itself across the world
economy. This Kondratiev A-phase will not match the splendour of its 1939–
1973 equivalent. It will be shorter and/or present lower economic growth
rates – above all when compared to the 1950–1973 period that followed the
systemic chaos of 1914–1945. This will especially be so in the declining regions.
There will be fewer material transformations in this period because it will be
affected by two downward trends: the B-phase of the systemic cycle and the
civilisational crisis. During this new expansive phase the financial and ideo-
logical foundations of US hegemony will crumble and it will no longer lead the
world economy as it did in the 1980s and 1990s, when only East Asia was more
dynamic. The world will enter a phase of systemic chaos and no single national
state will be able to rebuild the world system on new hegemonic foundations.
A bifurcation will take place, with one set of forces aiming to prolong historical
capitalism by sharing hegemony among the leading centres of global wealth,
whilst others seek to replace the modern world system with a post-hegemonic
system.

Nation-states may partly lead the way in this confrontation, but it will also
have a significant transnational dimension. This dimension has already made
itself felt in the mass protests against US imperialism and the oligarchic coor-
dination of the world economy. It is also present in attempts to organise social
movements on a global scale. These efforts are very much expressed by the
World Social Forum, – an attempt to administer the life of humans and the
planet by creating new forms of power. Transnationalism is developing on
three fronts: Firstly, through the internationalisation of social movements;
secondly, as national governments institutionalise demands for international
solidarity and cooperation; and thirdly, as emerging peripheral and semi-
peripheral states begin to press for the democratisation of the world system’s
regulatory forms. These three dimensions are still unfolding in a rather autono-
mous and under-articulated way. But if transnationalism does prevail, then
humanity will be able to get through the systemic chaos without succumbing
to a new war that puts its very existence in peril. In this scenario, transnational
forces will create transmission belts that cut across national states, keeping
them free from the control of global oligarchies. But if strict nationalism pre-
vails, then the slide into fascism, barbarism and the use of the State for coer-
cive purposes will be hard to stop.
Let us now turn to the empirical basis for the theses outlined above.
2 The Hegemonic Crisis and Its Empirical Basis
Others do not share our view that a new Kondratiev cycle has been fanning out
from the United States across the world economy since 1994. For some, the
world economy is in the grip of a long depression that began in the late 1960s
due to increased international competition among national states and conse-
quent chronic overproduction (Brenner 2003). A more common position con-
curs with the description of a long depression but attributes it instead to a new,
post-1979 financialised regime of global accumulation (Chesnais 1996, 1998a;
Fiori and Tavares 1993, 1998; Fiori 1999; Fiori and Medeiros 2001; Strange 1997).
We recognise the increased competitiveness in the world economy and the
tendency towards overproduction, both of which ultimately derive from the
crisis of US hegemony. They lead to a financial bubble forming in the world
economy, partly because of the need to finance the US balance of payments.
This bubble is also generated by the need to transform extraordinary surplus
value into extraordinary profit. As the secular trends of capitalist accumula-
tion advance, so fictitious wealth and State intervention are increasingly relied
upon to achieve this transformation, with the United States as the hegemonic

156 Chapter 4
power at the heart of this type of wealth creation. The financial bubble acts as
an engine that powers the expansion of the world economy. But it also creates
major contradictions for the US as its national debt deepens, its saving rates
decline, and it increasingly resorts to super-exploiting labour and boosting
capital exports to generate profits in regions where labour power’s value: price
ratio is more favourable to US corporate accumulation.
However, since 1994 increased competitiveness and the aforementioned fi-
nancial bubble have coincided with renewed economic growth, a restored rate
of profit and US leadership over interest rates in the accumulation process.
What indicators allow us to make this claim? Let us take two: the gdp per
capita growth rate, which is the chief indicator of the phases of the Kondratiev
cycle, and the rate of profit, which is their chief determinant.3
If we observe these indicators in the United States, we can clearly make out
the shape of the Kondratiev cycle. Between 1938 and 1966, gdp per capita
growth averaged 3%. We only have profit rate data for the years 1959–1966,
when it averaged 10.3%. But the strong convergence between per capita growth
rates means we can assume the profit rate was very similar in the preceding
interval (1938–59). Then between 1967 and 1993 the rate of profit fell by 35%
and gdp per capita growth fell by 33% compared to the previous phase. This
was a period in which national debt outstripped gdp, thus expressing the
strength of interest rates in the US economy and accumulation’s shift towards
financial hegemony. In 1993 the picture changed again. The rate of profit sud-
denly shot up and for the first time in 25 years managed to consolidate over a
six-year period. Between 1994 and 1999 it averaged 9.0%, peaking at 10.3% in
1997. This movement in the profit rate was enough to influence annual per
capita income growth, which reached 2.9% between 1994 and 2000 – 45%
higher than during the Kondratiev cycle’s B-phase (Figures 4.1 and 4.2).
We lack data on the rate of profit for the world economy. But for method-
ological reasons that we explain further on, per capita growth rates provide
clear evidence for our claims. During the inter-war period, the world economy
entered a very long Kondratiev A-phase. It began in the late 1930s and was driv-
en by US hegemonic expansion. It lasted 35 years, with per capita growth of
2.3%.4 During its golden age between the end of wwii and 1973 it registered
3 The rate of profit represents profits as a percentage in relation to the gross product of non-
financial corporations. Concerning profits, we refer to their value after taxes and adjustments
for inventory evaluation and fixed capital consumption. With regard to gross product, we re-
fer to its value after deducting profits for the period.
4 The A-phase of the Kondratiev cycle in the postwar period was longer for the world economy
than for the United States. For the former it lasted from 1939 until 1973, but for the US it ended
when its profit rates plummeted in 1967. The difference reflected the shift in dynamism in the
world economy towards other regions.

14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
Figure 4.1 US rate of profit
Note: For the year 2010 only the first quarter is included
Source: CEM, BASED ON Council of Economic Advisers (2010a, 2010b)
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
1959–1967 1968–1993 1994–2010
Figure 4.2 US rate of profit
Source: CEM, BASED ON Council of Economic ADVISERS (2010A, 2010B)
per capita growth of 2.9%. The B-phase of the cycle lasted from 1974 until 1993.
During this period, per capita growth fell 48% to 1.2% per annum. Between
1994 and 2000 it took a new turn. Per capita income resumed its accelerated
expansion and rose to 2.2%, signalling the emergence of the next Kondratiev
cycle. This trend became more pronounced during the sub-phase of prosperity

158 Chapter 4
3.5
3
2.5
2
1.5
1
0.5
0
1900–13 1914–49 1950–73 1974–93 1994–2010
Figure 4.3 Per capita gdp annual growth in the World economy (%)
Source: CEM, BASED ON Groningen Growth and Development
Centre (2010)
and reached 2.4% between 1994 and 2010, a figure that will probably have to be
adjusted downwards to account for the impact of the crisis of the transition to
maturity that took hold in 2008 (see Figure 4.3).
The second thesis we assert above is that this new emerging Kondratiev cy-
cle is influenced by the downturn in the US systemic cycle. One consequence
is that the United States will no longer lead the world in economic growth and
its expansion rates will probably tail those of the world economy during this
period. Another consequence is that the expansive phase of this Kondratiev
cycle is likely to be shorter and less pronounced than in the last cycle. This will
especially be so in the area still under the hegemony of the declining power,
with the ascendant region offsetting this tendency in the world economy.
Some authors deny that the United States is losing its hegemonic position in
the world economy. To prove their point, they highlight the dollar’s conversion
into the world currency and its role since the 1980s in financing the US eco-
nomic recovery. The keenest among them claim the United States has not just
recovered its hegemonic and financial power but is actually approaching em-
pire status.
According to world system theory, we can only properly analyse the con-
juncture by putting history back at the heart of our methodology. Giovanni
Arrighi and Beverly Silver (2001) argue that we can use the longue durée to
identify repetitive and evolving patterns in the modern world system’s cycles.
These patterns can then help us understand the nature and consequences of
the transformations we are seeing. When a hegemony’s productive and
commercial bases deteriorate, the dominant power attempts to preserve its
leadership by developing a regime based on financial accumulation. It uses its
control of high finance to drain resources from the world economy and finance

its own economic growth, in a competitive environment where circulating

capital is hotly disputed. But it cannot survive the economic competition
waged by new configurations of power or the ideological weakening caused by
becoming a drag on the world economy.
Take Britain for example. We know that its hegemony broke down between
1870 and 1913. This process was not uniform, however. Between 1880 and 1896 it
reversed the loss of power that began in the 1870s. In that decade the British
economy had increased its gdp per capita by 0.9%, as opposed to the United
States’ 2.7%. But in the seventeen years of a regime of financial accumulation
that followed, Britain outstripped both the world average and the US economy
in gdp per capita, expanding by 1.4% compared to the 1.1% attained by the US
and the world economy. Nevertheless, as soon as the A-phase of the new Kon-
dratiev cycle got underway in 1897 it sank the British economy and heralded a
return to the kind of figures associated with the 1870s. From then on the British
economy performed unremarkably and indeed far worse than the world and
US economies (see Figures 4.4 and 4.5).
We can trace a similar pattern in the US economy over the last thirty years.
Between 1967 and 1982, growth was below the world economy average. Then
between 1983 and 2000 it went back to bettering that average. But how long will
this last? Between 2001–2010 the reversal was dramatic and definitive (see Fig-
ure 4.6).
As with Britain between 1880 and 1896, financialisation between 1983 and
2000 allowed the US to reassert its influence on the world economy but with-
out regaining its previous position as world leader in economic growth. Al-
though Britain overtook the US for some of the 1880–1896 period, it in turn was
overtaken by the economic dynamism of Germany, which expanded its per
capita gdp by 1.8%. The United States recently surpassed Japan but not East
3
2.5
2
1.5
1
0.5
0
1870–80 1880–96 1897–1913
Great Britain United States

Figure 4.4 United States and Britain annual variation of gdp per capita
SOURCE: CEM, BASED ON MADDISON (1997)

160 Chapter 4
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
1870–1900 1900–1913 1870–1913
Figure 4.5 Annual variation in per capita gdp of the World economy, 1870–1913 (%)
Source: CEM, BASED ON maddison (1997)
3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
1967/82 1983/2000 2001/08
US World
Figure 4.6 US and World gdp per capita annual growth
Source: CEM, BASED ON maddison (2010)
Asia as a whole, which remains ahead thanks mainly to the economic dyna-
mism of China and India (Figure 4.7).
The main planks of this strategy to reverse hegemonic decline, consolidated
between 1967 and 1982, have been the appreciation of the exchange rate and
the liberalisation of trade and investment. The US government and bourgeoi-
sie acquired a significant amount of international liquidity by valorising their
assets in order to invest and stimulate growth. At the same time, they sought
through competition and with varying degrees of aggressiveness to offload the
weaker sectors of their economy. In the 1980s, the national debt was used as a
source of financing, but its unfettered expansion hit a limit when it began to
threaten social provision and the welfare state. In the 1990s, their strategy com-
bined the restructuring and expansion of the productive sector, but by 1998 it
started looking like it had run its course.

7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
China East Asian-16 India US Japan
Figure 4.7 gdp per capita annual growth (1983–2000) (%)
Source: CEM, BASED ON maddison (2001), Council of Economic
Advisers (2010b)
Despite its apparent strengths, the US strategy for growth presented serious
imbalances. One of these, noted earlier, was the trade deficit. This was the flip
side to acquiring international liquidity and meant that the big US capital had
lost its wager, above all with East Asia, to compete its way back to competitive-
ness. Between 1979 and 1987, the trade deficit expanded at a rate of 24.5 per
cent per annum.
In this period, external savings were mainly achieved through financial in-
struments that raised interest rates and discouraged investment, which was
largely directed towards the military sector. But a military founded on secrecy
and hierarchy proved too obsolete to lead the microelectronic paradigm. Be-
tween 1990 and 1993 the constraints on military spending, lower interest rates
and cheaper working hour – all a product of the recession at the decade’s
outset – combined to raise the rate of profit. This turned the productive sector
and stock exchange into means of attracting external resources. The crisis of
1990–1991 and the external funding of the Gulf War provided some relief for
the balance of payments. But the return to growth fuelled an expansion of the
deficit. Between 1992 and 2000, the trade balance deficit grew by 21.3% per an-
num to reach 3.8% of gdp (Council of Economic Advisers, 2010b). In 2001–
2002 the economy slowed down and faced crisis and stagnation.
By analysing the crisis of 2001–2002 we can shed light on the contradictions
of the US model of development as the country entered the A-phase of the
new Kondratiev cycle. The main determinants of the US crisis were the trade
deficit and wage increases caused by accelerated growth. Let us take a closer
look at this.

162 Chapter 4
4
gdp (%)
0
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Figure 4.8 US trade deficit (%)
Note: Trade deficit in goods
Source: Council of Economic Advisers (2010b)
The decline in US commercial and productive strength fuels a trend towards

trade and current account deficits (Figure 4.8). This trend is driven by the US
bourgeoisie’s reluctance to accept its loss of relative power, preferring instead
to keep an overvalued dollar and finance current account deficits via external
funding. We saw that in the 1980s this funding was provided by the national
debt. Then in the 1990s financing moved to the productive sector via mergers,
acquisitions and stock-market indexation. However, the deficit grew more
than the mass of profit, and this threatened to reduce foreign capital inflows,
as the productive sector’s capacity to absorb this mass of capital was limited.
To manage the threat attempts were made from 1996 onwards to appreciate
assets by means of a new movement to increase the exchange rate using inter-
est rates. But this movement was contradictory, for whilst it temporarily kept
capital flowing into the productive sector through speculative mechanisms, it
also contributed to stunting the growth of the profit rate.5
An overvalued dollar has made the US economy extremely vulnerable to ex-
ternal competition.6 This has led to low rates of inflation, mainly for producers,
5 This is one of the factors explaining why, despite reaching new heights, profit rates during
this period of growth failed to return to those of the years of postwar expansion. Between
1959 and 1966, interest payments reduced the mass of profit earned by non-financial US cor-
porations by 14%, while in the 1994–1999 period they took up 41% (Council of Economic
Advisers 2003). Between 1994 and 2007 these corporations enjoyed an average rate of profit
of 8.2%.
6 Robert Brenner (2003) stresses this point, but we do not share his conclusion that the US and
world economies have been suffering a deep depression since the late 1960s.

8
7
6
5
4
3
2
1
0
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
–1
–2
Figure 4.9 Producer price inflation in the United States (%)
and less room for negotiation in the face of wage pressures (see Figure 4.9). In
such a context, the leading sectors of the US economy are unable to compen-
sate for wage increases by raising prices. This represents a huge obstacle to
economic expansion. Although in 1979 US average wages fell below 1972 levels,
they began increasing again in 1996. This brought the rate of profit down by
29.5% between 1997 and 2001, causing the crisis of 2001–2002.7
This pattern of development means the US economy can no longer perform
at high rates of growth in the medium or long term. Exposed to external com-
petition, it will be unable to accomodate the trend towards wage growth stimu-
lated by lower unemployment without seriously affecting the rate of profit. To
get back to growth it has increased unemployment and reined in wage expan-
sion (see Figure 4.10).8 But US development will continue to be seriously
blocked in this way as long as the country’s bourgeoisie resists a major
7 Figures inferred from the Economic Report of the President (2010).

8 The US economic recovery of 2003–2007 is linked to rising unemployment, wage restraint
and expanding poverty. Unemployment rose from 4% to 6% between 2000 and 2003 and fell
to 4.5% in 2007. Weekly and hourly wages stagnated, fell slightly and then rose gradually in
2007 (on the eve of the 2008 crisis). Meanwhile poverty grew from 11.3% in 2000 to 12.5% in
2003 and stayed at that level for the rest of the period.
Note to the English edition: Between 2007 and 2012 poverty rates climbed to 15%, and
then fell back down to 12.7% by 2016. The Obama administration’s policies of negative real
interest rates and currency devaluation during the recovery from the 2008–09 crisis enabled
faster real wage growth despite the limits placed on this by a poorly performing economy.
However, these policies did not change the structure of US capitalism. In 2015 Obama went
back to a policy of strengthening the dollar. The Trump administration has maintained this
and also returned to hiking interest rates and cutting taxes. These policies have deepened the

164 Chapter 4
340
330
320
310
300
290
280
270
260
250
240
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Figure 4.10 US real weekly wages (1982–1984 in constant usd)
r eadjustment in the value of its wealth relative to that of the world economy
(see Figure 4.11).9 The aforementioned public policies already displayed seri-
ous contradictions when they were enacted by George W. Bush, and these con-
tradictions have only sharpened over the course of an expansive phase of the
Kondratiev cycle.10
The fall in the value of wages in the US national product, together with the
decline in the savings rate (in keeping with trade deficit-induced indebted-
ness) has led to serious bottlenecks blocking the realisation of extraordi-
nary surplus value at home. The mass of value appropriated through savings
in labour power achieved by technological innovation has suffered a rela-
tive decline as automisation has advanced. Furthermore, the demand thus
trade deficit, despite the protectionist rhetoric, and put new pressure on the rate of profit
and wages.
9 Ever since the Reagan years US exchange rate policy has zigzagged between a belle
époque and the privileges of seigniorage. During the belle époque the dollar appreciates.
But this increases accumulated debt and deepens trade deficits considerably, to which
the government responds by devaluating the currency. In doing so it exploits the privi-
leges of seigniorage to contain trade deficits by wiping out some of the debts held by ex-
ternal creditors. But there are limits to this approach, as the dollar cannot be devalued to
the point of losing credibility as an international measure of value.
10 The George W. Bush administration’s policies of cutting taxes on the rich and increasing
military spending deepened the national debt and trade deficits. The recovery was cen-
tred on a technologically stagnating military sector. It brought back trade deficits by tying
recovery to the state, and deepened those deficits by transferring income to families with
very low rates of saving.

1.4
1.2
0.8
0.6
0.4
0.2
0
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
Figure 4.11 Value of the dollar
Note: In 1973, the dollar was worth the same as the currencies of the United
States’ main trade partners
t ransferred to higher income segments – i.e. those associated with capital and
surplus value consumption – has been part-absorbed by the expansion of the
international market and has increasingly proven insufficient to maintain na-
tional commodity prices and the value of associated financial assets.
The 2008 crisis, which has spread from the United States to the world econ-
omy, can be explained in terms of the above process. Its sheer scale relates to
the fact that so many sectors of the world economy exploit the US market as a
source of extraordinary profit because the overvalued dollar boosts interna-
tional prices when they produce goods with local currencies and then sell
them in dollars. However, the flip side of this process is that it stifles the expan-
sion of the US productive sector. US firms respond to it by increasing the in-
vestments and the mass of profit they make overseas.11 The internal squeeze on
realising extraordinary surplus value leads to asset prices and investment rates
plummeting and the need for state intervention to prop them up, leading to an
unbridled expansion of the national debt. This debt is mainly linked to specu-
lation and maintaining fictitious prices. It increasingly relies on foreign credi-
tors because of falling US saving rates, and has kept US rates of investment at
depressed levels (see Figure 4.12). It therefore represents an obstacle to US
11 US firms have transferred a significant proportion of their investments abroad in search

of lower production costs. In 1967, around 5% of their profits were made overseas. Be-
tween 1994 and 2007, this rose to 17%, peaking during the crises of 2001 and 2008 at 23%
and 26% respectively. See Council of Economic Advisers (2010b, 436).

166 Chapter 4
25
20
15
10
0
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
Figure 4.12 US investment as a percent of gdp
e conomic growth by generating negative transfers of income and social costs

to sustain the economy. In this sense the debt is playing a very different role
compared to the postwar period, when it was linked to expanding the internal
market and the productive sector of the economy.
Since 2000, US growth has lagged behind that of the world economy, revers-
ing the tendencies of the 1982–2000 period (Groningen Growth and Develop-
ment Centre, 2010).12 This new trajectory of the world economy suggests that
as US hegemony crumbles in the years ahead world-economic dynamism will
shift to new regions, notably East Asia.13 One sign of US decline is that it is no
longer world leader in international capital flows (see Figure 4.13). This reflects
its diminishing status as a capital exporter as its economy loses dynamism.
Whereas between 1970 and 1980 the United States was responsible for 40–60%
of the world’s capital exports, that figure has since fluctuated between 10% and
30%. Initially in the 1980s rising capital imports compensated for this loss of
leadership, helping the US capture over 40% of international capital flows. But
12 Between 1982 and 2000, the US per capita gdp grew by 2.2% and the world economy by
1.5% per annum. Between 2000 and 2006 they expanded by 2.1% and 3.2% per annum
respectively. This gap widened in the post-2000 period if we take into account the crisis
that broke out in 2008, which mainly affected the United States and Europe.
13 Thesis presented at the meeting of the World Economy Studies Network [Red de Estudios
de la Economía Mundial – redem] in Rio de Janeiro (August 2001).

60
50
40
30
20
10
0
70
72
74
76
78
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
19
19
19
20
19
19
19
19
20
19
20
20
19
19
19
19
19
20
19
19
US to World World to US
Figure 4.13 US/World direct investment flows (%)
Source: unctad (2010)
its national debt and trade deficits expanded too fast to sustain such a large
share, and in the 1990s it sank below 20%. Meanwhile China has been closing
in on the US, and in the 2000s actually overtook it if we combine its figures
with those of Hong Kong.14
The US economy’s loss of dynamism and its limited growth have also dimin-
ished the importance of its internal market to the world economy. The volume
of Chinese domestic market imports is fast approaching that of US internal
market imports and will soon outstrip it if current trends continue (see Figure
4.14).
As for the question surrounding the intensity of growth of the new Kondra-
tiev A-phase, it is worth examining some of the evidence. The period from 1994
to 2008 registered a per capita gdp growth rate of 2.6%. If we exclude the post-
1939 period of systemic chaos in the Kondratiev cycle then this is less than the
2.9% achieved between 1950 and 1973. However, such a periodisation overesti-
mates the new cycle’s growth because it excludes its 2009–2010 crisis of transi-
tion to maturity. Two contradictory factors will make this average fluctuate
slightly upwards or downwards in the coming years: the dynamism of East Asia
14 In the 1980s, the US captured between 22% and 45% of worldwide foreign investment,
while China attracted between 0.1% and 3.5%. In the 1990s, the US share ranged from 11%
to 23% and China’s from 1.7% to 13%. Then in the 2000s the US absorbed between 9% and
22% of direct foreign investment and China between 2.9% and 9.5%. In 2009, China and
Hong Kong together absorbed 12.8% of international capital flows and overtook the US,
which received just 11.8% (unctad 2010).

168 Chapter 4
20.0
18.0
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
China usa
Figure 4.14 China and US/World imports (%)
Source: oecd (2010)
and counterhegemonic forces; and the relative decline of the hegemonic cen-
tre and its ideological areas of influence (Groningen Growth and Development
Centre, 2010). Geopolitical growth has shifted to East Asia and low growth is
concentrated in the United States and its regional ideological allies in Western
Europe, Latin America, Eastern Europe and Africa, all of whom have applied
the neoliberal policy package and in doing so forced down average growth
rates. Meanwhile China has continued to expand globally, especially since
2000, and this has benefitted the peripheries.15 Political and social conflicts in
such regions could draw them even more quickly into the axis of world growth,
currently located in China and East Asia, as they constitute new centres of
15 Taking 1979 (the first year of the belle époque in the United States) and 1994 as the start of
two different periods in the world economy, we find that per capita gdp increased by
1.8% between 1979 and 2008 and 2.6% between 1994 and 2008. The individual figures for
China and India are far higher: 6.7% in both periods for China; 4.1% and 5.1% respectively
for India. The US matched the world economy between 1979 and 2008, but the latter over-
took it by some distance in the post-1994 period, attaining per capita gdp growth of 1.9%.
The 12 highest-ranking Western European countries in per capita income terms experi-
enced rather modest per capita gdp increases over the two periods of 1.6% (1979–2008)
and 1.8% (1994–2008). Latin America and Africa performed poorly: the former growing by
0.7% (1980–2008) and 1.8% (1994–2008), and the latter by 0.6% and 1.9% over the same
two periods. Meanwhile Eastern Europe was hit hard by the fall of the Berlin Wall and
Russia by the collapse of the ussr, registering growth of 1.8% and 0.8% since each event
respectively (Groningen Growth and Development Centre, 2010).

regional accumulation that accompany the centrifugal tendencies towards

multipolarity.
Our third thesis was that the impending systemic chaos cannot be over-
come by the usual patterns followed by the modern world system. Instead,
post-hegemonic and socialist forces must create a new world system. What in-
dicators might support this assertion?
Firstly, no single state can concentrate all of the powers required to exert
hegemony in the world system. The variety, number and amount of transac-
tions among the units of the system has accelerated to the point that externali-
ties now predominate in technological innovations. Private appropriation of
the returns on such innovations is shrinking (oecd, 1991). The great oligarchic
powers and their international businesses defend themselves from this by
striking up selective partnerships. But this is a clearly inadequate response, as
doing so cannot prevent the displacement of economic dynamism towards re-
gions with much lower per capita income, such as East Asia.16
This means that by itself leadership in the accumulated capacity of science
and technology cannot guarantee continued hegemonic status. In fact it can
actually generate externalities for the world economy. It also means peripheral
countries can compete for the centre of the world economy providing they are
internally and externally organised for that purpose.17
Our second indicator is the shift in economic dynamism towards a region
that is not just peripheral but is home to 40% of humanity.18 This signifies a
radical break with models based on hegemony and oligarchic wealth. Hege-
monic countries previously represented between 0.3% and 6% of humanity.
16 According to Maddison, the 2006 per capita income of 16 East Asian countries (China,
Japan, South Korea, Taiwan, India, Malaysia, Thailand, Hong Kong, Singapore, Pakistan,
Indonesia, the Phillipines, Nepal, Myanmar, Bangladesh and Sri Lanka) averaged
US$5,266, four times more than in 1967 using 1990 Geary-Khamis dollars. This figure ex-
ceeded every other region in the world economy, thanks largely to the first four countries.
But taken as a whole, East Asia’s per capita income is typical of peripheral zones. See
Maddison (n.d.).
17 One sign of East Asian countries’ greater technological dynamism is the reduction in the
differentials of per capita aggregate value in manufacturing compared to the United
States. In 1967, Japan’s per capita aggregate value in manufacturing stood at 39% of the US
value. This rose to 79% in 1992, dropping to 70% in 2000. In South Korea it shot up from
7.8% in 1967 to 39.6% in 1999. In Taiwan, it climbed from 11% in 1967 to approximately
27% of the US figure in 1999. China and India started from much lower levels but with an
upward trajectory. China’s per capita aggregate value in manufacturing was 4.5% of US
value in 1987, but this almost doubled to 7.9% in 1998. In India, it rose from 6.4% in 1982
to 9.5% in 1998 (Groningen Growth and Development Centre, 2010).
18 By 1998 the joint population of China, India, Japan, South Korea and Taiwan was almost
2,439,700,000, or 41.2% of humanity.

170 Chapter 4
This prevented the global majority from controlling and distributing the
wealth. The inversion now taking place brings with it the promise of full social
control over the wealth produced and the dissolution of asymmetries between
politics and the economy (Maddison 2001).
Thirdly and finally, the new division of labour introduced by so-called glob-
al enterprises is undermining working class allegiance to national states. As
Ruy Mauro Marini observed in his later writings (Marini 1996), this is
because the growing interpenetration of markets has extended labour super-
exploitation to the very heart of the world economy. This has the effect of level-
ling down different regimes of labour power reproduction, but it also creates
the objective conditions for the development of a proletarian international-
ism. Ever since the 1990s this process has been fostered by a range of modifica-
tions and articulations that have been taking place in the world system. As
noted earlier, it has been driven by the organisation of social movements on a
planetary scale with the participation of forces traditionally subservient to the
imperialist interests of their national bourgeoisies, who have seriously revised
their approach upon witnessing the spread of super-exploitation to their own
countries. The best example of this is the role played by US trade union federa-
tion the AFL-CIO in organising protests against social and ecological ‘dump-
ing’ at the wto’s third ministerial conference in Seattle and takes part in the
World Social Forum.19
These three indicators point to a potential alliance of antioligarchic forces
uniting periphery and centre, East and West, in the pursuit of a planetary civili-
sation. But these economic forces alone are not enough to create a historical
bloc capable of founding a new world system: they need to be complemented
by the emergence of political and cultural elements who can drive global
19 The AFL-CIO advocates sweeping changes not just to international trade but also to inter-
national financing and investment. Its proposals address themselves to the wto, imf and
World Bank and, in respect of international trade, include basic labour standards such as
banning child labour, slave labour and workplace discrimination, and the right to collec-
tive agreeements and freedom of association. It also seeks a review of the World Bank and
imf’s loan conditions for developing countries, arguing that borrowing should reward
economic growth, democratic institutions, basic employment rights and environmental
protection. It stresses that developing countries need the resources to improve their pop-
ulations’ quality of life and enforce appropriate employment and environmental stan-
dards. To that end it advocates creating development funds and relaxing the specifically
financial conditions attached to foreign debt repayment. Likewise, each country should
be monitored to ensure it meets minimum employment and environmental standards,
and should be penalised and even excluded from the aforementioned international insti-
tutions if it violates said norms.

obilisations for peace in order to banish the threat to humanity represented

m
by the power of the hegemon.
In closing, let us touch on Latin America’s role in the world system. The de-
caying old world has reserved one of the worst places in the world system for
Latin America. As the periphery of a decadent centre, its function is now simi-
lar to that of India and China in the last quarter of the 19th and first half of the
20th century: to serve as an object of the hegemon’s regional power in its ef-
forts to postpone its own decline. Dismal development prospects, denationali-
sation, social polarisation and cultural barbarism all await us in the coming
decades should we continue down the path of dependency. But the process
has not unfolded without contradictions or resistance, and the neoliberal crisis
that broke out in 1999 brought to the fore new political, social and ideological
forces that have endeavoured to link Latin America to a new internationalism
and a new model of development.20
3 Hegemonic Crisis and Its Military Dimension
The attacks of 11 September 2001 were the first sign of an impending period of
systemic chaos that threatens to seriously unsettle the world system. As we saw
earlier, for a country to achieve hegemony it must concentrate world leader-
ship on the productive, commercial, financial, military and ideological levels
to the extent that its power is seen as unchallengeable and consensual. Since
1967 each of these hegemonic dimensions has been going through a process of
decline and exhaustion, albeit at differentiated and unequal rates. In terms of
trade and production, the crisis of US hegemony has been expressed by the
shift in economic dynamism towards East Asia: in the 1970s mostly towards
Japan, Taiwan and South Korea; then into China and to a lesser extent India as
the trend consolidated in the 1980s and 1990s.
In the 1980s, the US bourgeoisie backed the Republican strategy of dealing
with the country’s altered financial position in the world economy by reassert-
ing its great power status. Their strategy was based on overvaluing the dollar,
which served to fund a new arms race and second Cold War. The United States
20 Note to the English edition: The coups in Honduras (2009), Paraguay (2012) and Brazil
(2016), the neoconservative offensive that has isolated radical Bolivarian nationalism in
Venezuela, Ecuador and Bolivia and the defeat of Kircherism in Argentina have all rein-
forced the tendency towards decline, underdevelopment and peripherisation in Latin
America, reducing the influence it had gained in the years 2000–2015. However, these
trends have also deepened social and political conflict in what is a key region in global
geopolitical terms and one that will be disputed over the coming decades.

172 Chapter 4
consequently grew faster than the world economy average and was able to em-
bark on a major ideological and military offensive. However, this offensive
brought huge contradictions in its wake. ‘Strong dollar diplomacy’ suffered its
first setback with the dramatic growth of the national debt, which sustained
widening current account deficits. The Republicans were forced to abandon
their unilateral economic initiatives and seek joint solutions. This led to the
Plaza Accord, where it was agreed to appreciate the yen and the mark in order
to limit the extent of the dollar’s devaluation. A contradiction arose between
warfare and welfare and the process ended in economic crisis and Republican
electoral defeat.
In the 1990s the Democrats turned to a new strategy to wrest back unilateral
control of the dollar, although they adopted a more flexible imperial policy.
Fiscal surpluses were generated by cutting military spending and interest
rates, and in addition supranational mechanisms for jointly managing the
world economy were strengthened. As the dollar continued to be overvalued,
a fresh devaluation of the yen was negotiated between 1990 and 1994 in order
to control US trade deficits. The failure of this policy exposed the structural
flaws preventing the US from coordinating world monetary policy with Ger-
many and Japan under its leadership. The situation helped China to increase
its influence in the world economy through the devaluation of the yuan (fill-
ing the gap left by the Japanese), and its efforts to make technological progress
(thus simultaneously opening up internal, regional and US markets). Renewed
economic growth widened US current account deficits again, this time bene-
fitting China, and they were financed by the expansion of productive capital
via mergers, acquisitions and the sale of shares to foreign capital. But by the
end of the 1990s the Democratic strategy for speeding up economic growth
showed signs of exhaustion, and when the Republicans regained power in the
midst of economic crisis they once again made the imperial project their top
priority.
We can also identify signs of hegemonic crisis in the military dimension.
Hegemony cannot thrive on technological leadership alone: its leadership
must also be dissuasive enough to avoid having to use force to preserve the
geopolitical relationships established by the hegemon. It must guarantee mili-
tary victories whenever called upon to do so, but not at the expense of the le-
gitimacy of the hegemonic project being called into question internally.
From this perspective, the first sign of military crisis was the defeat in the
Vietnam War, in which 57,605 North Americans died. Domestic public opinion
played a crucial part in that defeat. Although the public initially supported the
war, by 1968 it was motivated by the sheer scale of loss of life and limb into
pushing for the US to withdraw, which it finally did in 1973.

The United States could only restore the credibility of its imperial policy by
reworking its military strategy. This took the form of the Star Wars project,
which ushered in a new kind of military intervention. Instead of engaging in
ground wars with heavy casualties, ultra-sophisticated technology was used to
wage war from the skies. This new strategy met with success in the Gulf and
Kosovo Wars, but it harboured a contradiction: although the US was able to
achieve its military aims, it was unable to overthrow the governments in ques-
tion, who were ultimately responsible for political conflicts. That could only
be achieved through land battles, occupation costs and the risk of major
losses.
The terrorist attacks on the World Trade Center and the Pentagon vividly
brought back memories of Vietnam – not just because of the numbers killed
but because of the failure of imperial policy to guarantee the safety of the US
population. In the final analysis the attacks were a manifestation of an interna-
tionally coordinated civil society and simmering resentment towards imperial
oppression across the world. They were also a consequence of Republican at-
tempts to relaunch a hegemonic offensive under increasingly unfavourable
conditions. The targets of the 11 September attacks were precisely symbols of
US financial and military power.21
It has been difficult for the hegemon to control this new enemy by military
means. Firstly, the enemy is diffusely located throughout the global territory.
Secondly, its diffuse presence is articulated through a powerful symbolism in
respect of how social, cultural, ideological and economic identities are per-
ceived in the world. And thirdly, destructive technologies have proliferated to
the degree that they can be used by unconnected cells belonging to a
network.
These factors have made the hegemon more insular. A violent show of force
might bring it some immediate results, but in the medium term might also cre-
ate a breeding ground for said factors, triggering conflict on an unprecedented
scale and a new fascist ideological offensive. It is up to popular forces to isolate
those sectors both inside and outside the United States who are encouraging
such a prospect.
21 Far from dismissing the notion, we think it highly likely that far right sectors of the Bush
government played a role in the 11 September attacks, just as Michael Moore suggests in
his documentary Farenheit 9/11. Their motive in doing so would have been to produce
their own ‘Reichstag fire’ as the excuse to launch a political offensive. However that does
not preclude the attackers’ relative autonomy and the role of external factors.

174 Chapter 4
4 The Impasses of US Foreign Policy
The George W. Bush presidency and the 11 September 2001 attacks provoked
major changes in US public policy, and especially foreign policy. Whereas dur-
ing the Cold War the paradigm of US foreign policy was containment and the
peaceful coexistence between the capitalist and socialist worlds which that
implied, the paradigm introduced under George W. Bush is premised on the
US achieving its objectives by force. This new model is a product of accelerat-
ed hegemonic decline and a conservative understanding of how to stop it.
During the Cold War the US had hoped to defeat the Soviet bloc by peaceful
means, using a dissuasive strategy aimed at turning its enemy capitalist by
combining military competition with either confrontation or detente. The
arms race, associated with confrontation, received a stimulus whenever ten-
sions mounted. This happened in 1947–53, when the US restricted any trade or
financial links with the socialist world. Then, during the period of detente fol-
lowing Stalin’s demise and consolidated under Nikita Khrushchev, the arms
race slowed down and commercial and financial ties were strengthened. In the
1980s neoliberalism became the dominant ideology of the world system and
inverted this relationship by combining the arms race with detente in the early
part of the decade. For the most part, the US limited its strategic use of force to
the Cold War’s ‘hot zone’ in the Asian periphery because of the inroads being
made there by socialism in association with nationalist movements linked to
the overthrow of old European colonial empires.
With its new foreign policy paradigm the US hopes to achieve its post-Cold
War goals of maintaining international leadership, preventing the rise of re-
gional powers, and facing down security threats by destroying its enemies.
Combined with new internal policies, this new model reflects an imperial
desire to manage international relations. Its fascistic approach threatens dem-
ocratic regimes and the principles of national sovereignty adopted at Westpha-
lia and later developed through the Concert of Europe, the League of Nations
and United Nations Organisation.
This evolution towards empire represents a historical tendency of the mod-
ern world system, but one that has never managed to fully materialise. It devel-
oped during periods of intense competition, associated with powers that were
unable to maintain their hegemonic status through free competition over the
long term and therefore resorted to violence, expansionism and empire. In the
20th century this violent tendency turned fascist in nature, as it was no longer
acting upon an archaic, precapitalist world, but one characterised by an exten-
sive global market, highly developed social organisations and postcapitalist
states.

The current rise of fascism in the world system derives from the explosive
combination of four factors: (1) the accelerated decline of US hegemony;
(2) the crisis of the nation-state as a means of managing the world economy;
(3) the subsequent inability of the US to support another state as its hege-
monic successor (unlike the United Netherlands and Great Britain previously),
and (4) the Republicans’ unilateral foreign policy. It can only be stopped by
creating the political conditions for a transfer of state power from the US
to forces representing a multilateral approach centred on international institu-
tions and interstate cooperation. Only then can the transition from US hege-
mony to a post-hegemonic and democratic world system be achieved. The
election of Barack Obama represented a step in that direction, but only a lim-
ited and temporary one.
4.1 Rewriting Foreign Policy in the Post-Cold War Era

The period from 1967 to 1982 was a bad one for US hegemony. Economically,
Japan and East Asia grew in dynamism and influence as US growth lagged be-
hind that of the world economy and the balance-of-payments crisis triggered
the collapse of the Bretton Woods system as the dollar was depreciated and
taken off the gold standard. Vietnam and the Iranian Revolution represented
major political and military defeats, whilst economic stagnation imposed re-
strictions on military spending and imperialist policy.
The second phase of the Cold War represented President Reagan’s attempt
to go on the offensive both politically and economically by ratcheting up mili-
tary expenditure and unilaterally strengthening the dollar (Hobsbawm 1994).
US foreign policy in this period sought to defeat the socialist bloc by outspend-
ing it in a new arms race. Meanwhile on the economic front it harnessed neo-
liberalism to modernise production by investing in new military technology
and destroying the most backward branches of industry. Subsequent trade
deficits were financed through the sale of federal government bonds to foreign
capitals, which was helped by the currency being strengthened through higher
interest rates and credit restrictions. Neoliberalism was the weapon used by
the US in this ideological offensive to end protectionisms, align different na-
tional policies and penetrate national markets.
This second phase of the Cold War not only affected the Soviet Union but
also exposed US inability to sustain the new arms race it had initiated. In the
early 1990s the results seemed positive for the US: it had overtaken average
global growth; restored the dollar as the world currency; defeated its main en-
emy, and liberalised international trade. It had also developed a new military
strategy through the so-called Star Wars project. Battle-tested in the Gulf War,
Star Wars appeared to give the US the advantage in military technology.

176 Chapter 4
These policies nevertheless revealed serious contradictions and led eventu-

ally to a crisis of Republican legitimacy and the return of the Democrats. Trade
deficits widened dramatically, partly as a result of economic dynamism shifting
towards East Asia, but mainly due to dollar appreciation, liberalised markets,
rising interest rates and the concentration of investments in the technologi-
cally backward military sector. The subsequent ballooning of the national debt
and public and trade deficits threatened the social security system and health,
education and social welfare budgets, and so policy in these areas had to be
restructured. Indeed, the financial crisis afflicting the US state was so severe
that its allies had to bankroll the first Gulf War.
On the military front the new strategy’s contradictions were clear to see. The
Star Wars programme turned out to be a most ineffective way of fully defeating
the enemy. Aerial bombardments could destroy strategic targets – albeit less
accurately than claimed – but not overthrow governments. That required land
battles, bringing with it a greater risk of casualties and, as a consequence, the
revival of the peace movements that had successfully disarticulated the US
imperialist apparatus during the Vietnam War.
Furthermore, the breakup of the Soviet Union removed one of the pillars of
US hegemony – the Cold War. The Cold War had enabled the US to put the
world economy back on its developmental trajectory, divide social democratic
and communist parties into two opposing poles, and limit much of the social-
ist movement to pursuing socialism in one country or region. Its demise called
into question the very foundations on which the US had reorganised the world
economy: it now restricted rather than stimulated liquidity in the world econ-
omy; and the divisions between social democratic, socialist and nationalist
movements began to disappear now that US imperialism was less crucial to
reorganising the European economy and socialism in one country seemed
achievable. Faced with the crisis of the existing foreign policy model, the Bush
government redefined its priorities as defending US hegemony; fighting inter-
national security threats (i.e. the proliferation of weapons of mass destruction,
international terrorism, the drugs trade); ethnic conflicts; immigration; the en-
vironment, and spreading democracy and the free market.
Public policy restructuring under the Democrats called for a reassessment of
Republican-era unilateralism. The Clinton administration maintained and in-
deed raised spending on security, health, education and welfare. In order to
meet its objectives it tried to control the national debt as well as cutting interest
rates and military spending. It also revived a multilateral approach to managing
the world economy. This was reflected in the value it attached to international
bodies, especially the North Atlantic Treaty Organisation (nato), to interven-
tion in the name of international security, and to multilateral or bilateral

egotiations as a means to peace. In foreign policy Clinton even occasionally

n
proclaimed his right to assume the universal defence of a humanitarian agenda
without prior UN authorisation. But it was not until the late 1990s that, with the
resources freed up by large fiscal surpluses, he could intervene in Kosovo with
nato backing and thereby gradually expand military expenditure once again.
Meanwhile multilateralism in economic affairs saw more resources being
transferred to intergovernmental institutions such as the imf. This support al-
lowed for aid packages large enough to keep a lid on the crisis and maintain
open markets and the free movement of capitals, especially towards Latin
America and Asia.
Clinton’s ‘Third Way’ social democratic administration fell short of breaking
with neoliberalism despite challenging it through various initiatives. By creat-
ing fiscal surpluses and increasing social spending it managed to reduce pov-
erty and stimulate economic growth. But it undermined the immediate impact
of these measures on public opinion by using a large chunk of the surplus to
reduce the national debt. As a result, public opinion warmed to George W.
Bush´s Republican discourse in support of putting the surplus back into tax-
payers’ pockets via tax cuts. Furthermore, the attempted co-management of
exchange rates with Japan failed and Chinese economic power grew. In addi-
tion, current account deficits expanded and depressed prices in the productive
sector, thus rendering the US economy incapable of withstanding the wage
pressure caused by falling unemployment.
Clinton’s attempts at multilateral coordination failed to prosper. The wto
failed to reach agreement over the environmental and labour standards his
government tried to impose on international trade. Talks aimed at implement-
ing the Kyoto Protocol were interrupted during the successor administration
and proved inconclusive. Boosting the resources central states pump into in-
ternational financial institutions did not prevent them being used to expand
the neoliberal model, and neither did they put an end to speculative behaviour
in the world economy. Latin American trade policies continued to follow neo-
liberal doctrine. Clinton signed the North American Free Trade Agreement
(nafta) and through the Free Trade Area of the Americas (ftaa) he revived
the plans for a hemispheric free trade zone originally set out in the Enterprise
for the Americas Initiative.
The main outcome of Clinton´s more globally minded foreign policy was
that international conflicts were contained to a degree by constructing a nego-
tiation-friendly environment. Even though the policy failed to attack the root
causes of such conflicts, it did reflect conditions of greater international legiti-
macy and cooperation, which would culminate in the creation of the Interna-
tional Criminal Tribunal in 2002.

178 Chapter 4
4.2 Foreign Policy under George W. Bush and Barack Obama

The Republicans’ return to power under George W. Bush reinserted the United
States into neoliberal patterns of the most competitive and anarchic kind. But
its adherence to neoliberalism is ever more contradictory, because from the
standpoint of competition the US is losing economic power and ideological
legitimacy. From this perspective, its increasing reliance on state power to safe-
guard its economic and geopolitical status in the modern world, via protec-
tionism and the use of force, functions as a compensatory mechanism.
The Republican model of development seriously compounded US weak-
nesses. The increasingly intertwined public and current account deficits both
skyrocketed. To bring back economic growth, the Republicans reduced taxes
on corporate profits and large fortunes, cut interest rates, and triggered a new
arms race by spending more to protect high-technology segments from exter-
nal competition for ‘security’ reasons. Their contradictory economic pro-
gramme relied on the room for manoeuvre they enjoyed thanks to years of
Democratic fiscal equilibrium. At its heart lay tax cuts and military spending,
which together brought an end to fiscal surpluses and generated a huge public
deficit. As a result it was impossible to hold down interest rates in the medium
term, and they shot up between 2005 and 2007 before falling again during the
2008 crisis.
Because of tax cuts, public savings were transferred to higher income con-
tributors and the trade deficit began to expand. These trends led to a resur-
gence of US protectionism and fresh attacks on social spending and social
rights in order to finance the expansion of military activity.
In foreign policy, neoliberal anarchy and competition led to the US govern-
ment adopting a unilateral position that wrecked the negotiation-friendly
environment keeping a lid on global tensions. With this posture it sought to
undermine the political mechanisms for coordinating the world economy.
This became evident at different moments: militarily, when it abandoned the
antiballistic missile treaty and refused to sign the anti-landmine treaty; on the
environmental front, when it rejected the Kyoto Protocol; in the social aspect,
with its restrictions on conferences addressing social rights (e.g. the anti-
racism conference); legally, when it refused to set up an International Criminal
Tribunal; in trade through its protectionist measures (e.g. those targeting steel
imports, which hit Latin America especially hard); and financially, by limiting
imf-bound resources and the latter’s role as creditor in crisis situations.
The new approach fuelled global tensions and conflicts, and we should situ-
ate the attacks of 11 September 2001 in this context. The Republican govern-
ment responded to these rising tensions by relying more heavily on the use of
force to control the centrifugal tendencies developing in the world system as a

result of hegemonic crisis. This response was reflected in the new foreign poli-
cy paradigm promoted by US political hawks for whom national decline flowed
directly from restrictions preventing it from using military superiority to settle
conflicts.22 The Bush Doctrine represented this new mindset. It prioritised ‘se-
curity’ and the defence of US interests at the expense of democracy and turned
eliminating the ‘axis of evil’ into its core foreign policy goal, i.e. getting rid of
regimes that according to the US government were either developing or ac-
quiring weapons of mass destruction or else supporting international terror-
ism. States run by governments belonging to the ´axis of evil´ included Iraq,
Iran, Syria, Cuba, Libya, North Korea and Sudan.
The Bush Doctrine asserted the right of the United States to carry out pre-
ventive military attacks and invasions based on its own ad hoc judgments. Not
only was force used against the ‘axis of evil,’ but civil rights, individual free-
doms, and democratic institutionality all came under threat, as the passing of
the Patriot Act showed. National sovereignty and international agreements
were also targeted. The high point in this process came with the international
effort, led by Bush with backing from Blair, Berlusconi and Aznar, to invade
and occupy Iraq, where a US-led coalition government was imposed.
How far can this process go? As far as praxis allows it to. As Wallerstein
notes, the hawks are wrong. The 11 September 2001 attacks exposed US military
vulnerability and the use of force can only hasten the end of its hegemony. The
risks are real and have up to a point restrained the hawks. But US leadership
will have to be replaced by a new way of organising the world system if its de-
cline is not to degenerate into a chaos that endangers humanity very survival
and its civilisational achievements. It is therefore crucial that democratic forc-
es in both the State and civil society combine globally to carry out the
transition.
Despite the initial triumphalism, the invasion of Iraq thoroughly exhausted
imperialist policy and gave the newly elected Barack Obama the chance to
overhaul US foreign policy. The Obama government faced the challenge of cre-
ating fresh paradigms and a new public policy agenda for the US. Its failure to
do so should not blind us to the fact that this challenge responded to an ongo-
ing structural need on the part of the world system, as a return to territorialism
could lead to US hegemonic power collapsing in the years ahead. There are
several reasons why this might happen:
a. Once the Star Wars Project is definitively dropped from the centre of con-
flict strategy the risk of large-scale US troop casualties could again be-
come a real possibility.
22 On this, see the excellent article by Immanuel Wallerstein (2002).

180 Chapter 4
b. A return to territorialism would imply huge costs, which would expose

the vulnerability of the US economy. Expenditure on wars and occupa-
tions would aggravate macroeconomic disequilibriums and put the
country on the road to insolvency.
c. US military and financial vulnerability could seriously undermine popu-
lar support for the imperialist administration running the state appara-
tus. This would contribute to one of the conditions for hegemonic crisis,
i.e. the US imperialist bourgeoisie’s loss of internal legitimacy. Support
would fall away for several reasons. Firstly, the war’s toll on the country’s
youth would generate a sense of insecurity across society. Secondly, ter-
ritorialism would make the US population a terrorist target as a result of
being unable to pay the world system´s protection costs. Thirdly, the cuts
made to welfare, health, education and security budgets in order to bal-
ance public budgets and bring the balance of payments out of the red
would also chip away at support.
d. The more it applies the doctrine of pre-emptive action, the more the
United States threatens individual rights, national self-determination
and sovereignty and encourages anti-imperialist sentiment and mobili-
sation in the world system. It also has the effect of drawing deeply rooted
regional, cultural and civilisational identities within the US closer to-
gether, as revealed in embryonic form by the election of Obama.
The more the US attempts to meet its rising external financing needs, the less
capitals will circulate in the periphery/semi-periphery and the worse the crisis
will get in countries in regions with external vulnerabilities from having ap-
plied neoliberal policies. This could lead to a powerful anti-imperialist and
anti-neoliberal offensive by social movements, but they would have to dupli-
cate current levels of international solidarity and organisation.23
It will not be easy for the US’s global big bourgeoisie to abandon territorial-
ism. Its hunger for more wealth and the absence of a suitable hegemonic
successor drive it towards the ever-greater appropriation of global wealth. Ter-
ritorialist and imperialist policies help it achieve this, either in the guise of
payment for protection costs or by directly appropriating third-party resourc-
es. Nevertheless, the growth of the US national debt and its subsequent loss of
23 Beverly Silver, Giovanni Arrighi and Melvyn Dubofsky (1995) use quantitative indicators
to measure antisystemic mobilisations by workers in the world system between 1870 and
1990 (see Chapter 2). One of their main conclusions is that mobilisations reach their high
points in postwar periods. Thus the index rose from 98 in 1917, to 276 and 242 in 1919/1920,
and from 86 in 1945 to 195 and 206 in 1946/1947. Ironically, renewed military territorialism
on the part of the US has done much to stimulate antisystemic movements in the modern
world system.

credibility as an international source of financial or legal security suggest there

are internal limits to this approach.
If the US trade deficit keeps expanding at the same rate it did between 1992
and 2006, then it is estimated that by 2020 it could represent up to 10% of na-
tional gdp and drain away approximately 1.5% to 1.6% of world gdp.24 That
could make it hard to maintain world per capita gdp growth, as those sur-
pluses would be going to a region with low investment and savings rates. On
top of that, the pressure to appropriate surpluses by expanding the national
debt could provoke a new US financial crisis.25 That could unleash a serious
recession/depression in the world economy and trigger a new global upsurge
of political and social movements, either in emerging regions or in peripheries
24 The 2008–2010 crisis reduced the US trade deficit significantly. But once it is out of depres-
sion the country will almost certainly get back on a trayectory of accelerated expansion,
just as it did after the crises of 1991–1992 and 2001–2002. In 1992 the trade deficit fell to
0.6%, after increasing from 0.9% to 3.2% between 1980 and 1987. In the year 2000 it rose
to 3.8% before falling to 3.5% during the 2001–2002 crisis. In 2006 it rose to 5.7%. The 2009
depression reduced it to 2.5% but it picked up the pace of growth again in 2010, reaching
3.3% of gdp. Between 1992 and 2006, the US trade deficit/gdp experienced annual
growth of 17.4%. If that rate is maintained in the 2010s and its gdp oscillates between 19%
and 16% of the world economy, then in the following decade the US will absorb between
1.4% and 1.6% of world gdp.
Note to the English edition: The US trade deficit remained stable between 2011 and
2016, rising from US$740 billion to US$752 billion after the 2009 depression slashed it
from US$832 billion in 2008 to US$509 billion. However, this stability is illusory and was
only achievable because the oil trade deficit shrank significantly from US$325 billion to
US$58 million thanks to falling hydrocarbon prices and the use of shale gas to substitute
for imports. It is now hitting its limits, both because the oil deficit is unlikely to shrink any
further and also because of the fast-rising non-oil deficit. Between 2010–17 the non-oil
goods trade deficit rose by 11.4% p.a. to US$720 billion, much higher than the 2006 pre-
crisis figure of US$557 billion. The 2017 US global trade deficit of approximately US$811
billion signals the end of stability and points towards expansive tendencies that the
Trump administration is set to boost by strengthening consumption, reducing taxes for
the rich, and strengthening the dollar through interest rate rises.
The sharp increase in the trade deficit between 1999 and 2006 expressed the com-
bined speed-up in growth of the oil and non-oil deficits. In this period, the total deficit
increased by 14% p.a, the oil deficit by 24% p.a and the non-oil deficit by 11% p.a. The
reduction of the non-oil deficit represents the temporary victory of imperialist over na-
tionalist forces in the world economy. But as long as this particular deficit continues along
its accelerated trajectory, with China the main beneficiary, it will only serve to deepen the
crisis of US hegemony.
25 Between 1980 and 2010 the ratio of federal national debt to US gdp grew by about 3.5%
per annum. If that ratio is maintained over the next ten years, the debt could surpass
120% of gdp.

182 Chapter 4
subservient to the declining power where the effects of such a downturn would
be felt most keenly.
The Obama government´s failure to achieve its campaign goals showed just
how hard it is to make substantive changes to US public policy. Whereas Clin-
ton slashed military expenditure by up to 10%, Obama not only broke his elec-
tion promises to cut it, but expanded it by 8% per annum until 2010, compared
to the Bush government´s 9.6% (Council of Economic Advisers 2010b). He also
redoubled military intervention in Afghanistan and went back on his pledge to
withdraw troops from Iraq, leaving around 50,000 in place. Furthermore, his
attempt to close Guantanamo Prison was defeated in Congress. Domestically,
he reinforced George W. Bush’s policy of protecting extraordinary profits by
running up huge public deficits. This dented his popularity and led to a huge
defeat for the Democrats in the 2010 mid-term elections.26 The policy trans-
ferred a significant share of the public saving to big capital without the benefit
of increased productivity in return, which led to lower rates of investment, per-
sistently high unemployment, a greater share of the national budget going on
interest payments and negative pressure on the expansion of social
spending.27
Any serious attempt to overhaul US public policies would have to transform
their class basis and tailor them to the social majorities and entrepreneurs
linked to the internal market.
4.3 Obama Administration Policies and Trump

The Obama administration’s tight fiscal policies increased military spending
and expansion of the public debt in order to sustain the fictitious value of toxic
private debt lost it much support and gave the Republican right the chance to
go on the offensive. As a result, the latter won the congressional elections of
2010 and 2014, diminishing the government’s power and freedom to promote
26 The military budget was increased from 3.8% of gdp in 2008 to 4.7% in 2011. Only then
did it begin falling in relative terms thanks to Congress-imposed limits aimed at tackling
the enormous public deficit, dropping to 3.8 % in 2013 and 3.5% in 2014. Obama withdrew
US troops from Iraq in late 2011 but did maintain a staff of nearly 20,000 in the US Em-
bassy, the vast majority of whom were non-diplomats, military personnel and mercenar-
ies. Their number dropped to around 5,000 by the end of his mandate. Between Septem-
ber 2012 and the end of 2014 he withdrew US troops from Afghanistan, leaving behind a
10,000-strong contingent under the command of nato forces.
27 The Economic Report of the President 2010 (Council of Economic Advisers 2010b), estimat-
ed that in 2011 federal budget expenditure including interest payments would rise from
US$180 billion to US$250 billion, and that social spending would be reduced from US$685
billion to US$595 billion.

its own initiatives. Poverty levels increased from 13.2% in 2008 to 15% in 2012
and remained high until they began to fall in 2014, dropping to 12.7% by 2016.
The electorate expressed its disenchantment with the Democratic Party es-
tablishment by widely backing Bernie Sanders, the independent senator from
Vermont who joined the party in a bid to be nominated as its presidential can-
didate on an advanced social democratic agenda. However this popular sup-
port was not enough to win the Democratic primaries, where the still-powerful
party aristocracy prevailed. Trump’s candidacy encouraged a demagogic right
populism that looked to the State to protect jobs. This populism threatened
immigrants (above all Mexicans); firms that had undercut US jobs by relocat-
ing production; free trade agreements (both existing ones such as nafta and
those in the making such as the Transpacific Alliance); wto-agreed tariff regu-
latory frameworks, and countries in technological competition with the Unit-
ed States, such as China, or with access to US market niches. Trump’s fanatical
racist crusade against multiculturalism, Mexicans/Central Americans, Islam
and, it would seem, corporate globalism did not win him the popular vote
against Hillary Clinton, but was enough to secure a majority in the Electoral
College. Clinton won the popular vote by 3 million votes, less than the 10 and 5
million obtained by Obama in 2008 and 2012 respectively.
Despite his rhetorical support for protecting local jobs, Trump has seriously
deepened the US trade deficit by going back to cutting taxes, raising interest
rates and strengthening the dollar. These policies, along with the retaliatory
measures they have provoked worldwide, have undercut his unilateral tariff and
para-tariff restrictions. The US is increasingly using force as an international
policy instrument. It has also abandoned its universalist discourse, as evident
from slogans like America First. These factors combined with rising US military
expenditure and an increase in international conflicts and disputes have served
to destabilise the global system and bring the risk of systemic chaos closer.
5 US Hegemony: the Theoretical Debate
Earlier we described how there are two main positions in the US hegemony
debate. For some, US hegemony is in crisis. For others, it is getting stronger or
is en route to becoming an empire. We are among those who defend the hege-
monic crisis perspective. As with its counterpart, this perspective comes in
many different and theoretically heterogeneous versions. Ours is based on the
analysis of systemic cycles found in the world system theories associated with
the Fernand Braudel Center. We aim to articulate this perspective with the

184 Chapter 4
Marxist approach developed by Marx himself, by theories of the techno-

scientific revolution, and by dependency theory.
Dependency theory posits that the international division of labour was
built on a ‘compromise situation,’ and puts the concept of hegemony at the
core of its understanding of the capitalist world-economy. This enabled depen-
dency analysts such as Theotonio Dos Santos to be among the first to theorise
the crisis of US hegemony. Nevertheless, dependency theorists failed to suffi-
ciently integrate systemic cycles into their analysis because they did not see
the world-economy as its main object, and neither therefore its political and
institutional cycles. This failure has meant dependency theory is prone to
overestimating the role played by Kondratiev cycles and the world economy’s
potential for growth in periods when the upturn in the Kondratiev cycle coin-
cides with larger downward cyclical movements.
Other approaches also defend the hegemonic crisis thesis, foreseeing either
a smooth transition towards shared hegemony that makes use of multilateral-
ism and ‘soft power’28 (Nye 2002) or a gradual shift towards a multicivilisa-
tional world of regional hegemonies (Huntington 1996). We critiqued these
positions earlier.
In this section we examine the arguments of those who claim US hegemony
is getting stronger: Ana Esther Ceceña (based at the Universidad Nacional
Autónoma de Mexico’s Economic Research Institute); François Chesnais and
his followers in France; Susan Strange (United States), and the Brazilian group
led by Maria da Conceição Tavares and José Luís Fiori (at the Economic Insti-
tutes of the Universidade Federal do Rio de Janeiro and Universidade de
Campinas respectively).
Ana Esther Ceceña has written and edited a range of valuable works. The
latter have featured Raúl Ornelas, Andrés Barreda Marín and other authors,
and are best represented by Producción estratégica y hegemonía mundial (Stra-
tegic production and world hegemony) (1995). Ceceña starts out from Grams-
ci’s conceptualisation of hegemony, which she defines as the combination of
coercion and consent that allows a collective subject to articulate different lev-
els of social administration (gestão social) in order to transform its own inter-
ests and projects into universal ones (Ceceña 2001a, 2001b). Internationally, she
sees hegemony as organised by the nation-state on the basis of the economic
28 For Joseph Nye (2002, 8–12), soft power represents the set of values that makes a country
admired by others and allows it to set a political agenda favourable to its own interests.
Nye argues that the soft power of the United States is based on values such as democracy,
personal freedom, social mobility, liberalisation and the power of popular culture and
media.

leadership exerted by its capitals. She identifies four dimensions to hegemony:

military, political, cultural and economic. Her main focus, however, is on the
economic, which she links to the military dimension. In her view, the global-
ization of the capitalist world system has made it far harder to exercise hege-
mony because it expanded its reach and made its control diffuse. Hegemony
has come to rely on strategically dominating the process of reproducing social
existence, which means controlling cutting-edge technologies, vital physical
resources, and labour. This in turn has facilitated the expanded reproduction
of superprofits. Using this conceptual framework, she shows how the US en-
joys multiple advantages over its competitors when it comes to strategic con-
trol: it leads the field in new technologies (IT, software, telecommunications,
research and development); it extracts essential raw materials (oil, coal,
metallic minerals), and it manages an ethnically diverse workforce under the
stimulus of migration, which enables it to impose negotiating terms that fa-
vour flexible employment and capital accumulation (Ceceña 1995, 1998; Cece-
ña and Marín 1995; Ceceña and Sader 2002).
Ceceña highlights another crucial aspect to US hegemony in her work: the
tendency to territorialism that arises from its need on the one hand to process
resources (oil and other strategic minerals) on the scales demanded by an ex-
panding world economy; and on the other to control strategic resources that
represent new sources of development (i.e. biodiversity) and make it possible
to fuse microelectronics with biotechnology (Ceceña and Sader 2002). These
resources are bound up with territorialism. The world’s most biodiverse re-
gions are tropical zones such as the central strip of the Americas that extends
from the Pantanal and Amazonia to the mountains and cold areas of Puebla;
South-east Asia, in particular Indonesia and its islands; and the west coast of
Africa, especially Nigeria and the Republic of Congo. Control over these terri-
tories and their indigenous populations and cultures offers a crucial competi-
tive advantage that boosts economic leadership. The central strip of America is
also rich in oil reserves. In 1999 the combined production of oil and natural gas
from Mexico, Venezuela, Colombia and Brazil exceeded that of Saudi Arabia
(Maddison 2001, 150).29 The author describes the US’s current territorialist
ambitions in the region, first anticipated by Plan Colombia and the Puebla-
Panama Plan,30 and the biodiversity studies carried out by institutions linked
29 Maddison (2001) highlights Latin America’s growing participation in oil and natural gas
production as a result of large deposits being discovered in very deep areas and the devel-
opment of technology to extract them. In 1973, Latin America produced 9.5% of the
world’s oil and natural gas, increasing to 14.7% by 1999.
30 The Puebla-Panama Plan aims to build a strategic corridor in the Isthmus of Tehuantepec
to allow goods to flow between the Atlantic and Pacific Oceans.

186 Chapter 4
to the US state such as the International Cooperative Biodiversity Group.

These plans could facilitate the military, economic and scientific occupation of
the region under pretexts ranging from the war on drug trafficking to the con-
struction and control of the Isthmus of Tehuantepec corridor and biodiversity
research/conservation.
Ceceña and her group provide a wealth of empirical data on technologies,
geopolitics and strategic resources in their work. Nonetheless we are obliged to
make some methodological observations concerning the relationship of these
dimensions with hegemony:
a. Proving US leadership in high technology and strategic raw materials
provides insufficient grounds for concluding that its hegemony is solid.
Hegemony is not about a country’s leadership in strategic sectors, but
about it being so much more powerful than its competitors that it can
articulate and subordinate external interests to its own and make them
universal. In military terms, for example, US technological leadership
cannot compensate for vulnerability of the kind exposed by the Vietnam
War and the attacks on the World Trade Center and Pentagon. Vietnam
proved that North American society was unwilling to accept the high
costs of imperialism, whilst the 2001 attacks showed that US military
leadership could not save its population from large-scale destruction. As
Nye (2002) notes, we have entered an era in which soft power is a more
reliable guarantor of institutional stability than hard power.
b. Hegemonic power is determined as much by the way it is distributed over
time as it is by strategic power differentials. The crisis of hegemony be-
gins when the hegemon finds it difficult to sustain existing power differ-
entials, despite them being weighted significantly in its favour. The gap in
those differentials narrows over a long period of time, and this edges he-
gemonic crisis towards hegemonic collapse.
c. Discussion about the size of the differentials underpinning hegemony
should not centre on use values. Instead it should draw out the relation-
ship between the dimensions linked to technologies and labour process
and the hegemon’s power to maintain the institutional structure it cre-
ated for the world economy. As for Ceceña’s discussion of the economic
aspect of hegemony, the most appropriate indicators for measuring hege-
monic development are not technological but macroeconomic, which
include the former in a separate dimension. Indicators such as the trade
balance, balance of payments and interest rates reveal the extent of the
hegemon’s power to stimulate and sustain both its own development and
that of the world economy. That does not mean giving up on the analysis
of technological processes but rather situating them within a broader

context, as their economic impact can be measured using macroeconom-

ic indicators.
d. Although the works cited concentrate on studying economic hegemony,
they ought to integrate their findings better with the general concept of
hegemony, according to which the state not only applies coercion but also
builds consensus. If we examine hegemony from this perspective, in oth-
er words as the power to create consensus, we find that on various issues
the US has become increasingly isolated from majority opinion among
national states and social movements. Thus on the environment it is at
odds with supporters of ratifying the Kyoto Protocol; in international law
it has yet to recognise the International Criminal Tribunal, ratified by 108
countries by the end of 2008; on the political front, the Bush Doctrine was
opposed by proponents of negotiated solutions to international conflicts,
a position Obama offered to review, despite maintaining intervention in
Afghanistan; and on an ideological level the US has fought the rise of so-
cial movements against neoliberalism and imperialism, notwithstanding
Obama’s timid attempts to distance himself from such paradigms and
agree a multilateral agenda to tackle social emergencies worldwide.31
31 Note to the English edition: Obama sought to restore the United States’ hegemonic lead-
ership in international politics, replacing the Bush Doctrine’s unilateral imperialism
based on pre-emptive strikes with a centrist liberal imperialism tied to a nato-backed
coalition and an alliance with Western European powers. In order to reduce global and
local protection costs and create more space for negotiation, this liberal imperialism
combined with either insurrectionary forces to destabilise and overthrow ‘enemy’ govern-
ments or with political oppositions amenable to US-led multilateral negotiations. This
created an opportunity to minimise certain historic conflicts, as seen in Obama-era initia-
tives in respect of Iran, Cuba and the Israel-Palestine conflict.
Whilst Obama’s liberal imperialism contained the expansion of military spending pre-
viously driven by the unilateral imperialism of George W. Bush, it did not seriously reduce
it. Neither did Obama fully break with the Bush Doctrine. In fact he continued to rely on
certain concepts associated with it, such as the ‘axis of evil,’ and on some of Bush’s staff.
Although his administration oversaw the withdrawal of US troops from Iraq and Afghani-
stan, it also led military intervention in Libya and Syria, failed to close Guantanamo, and
declared Venezuela a threat to US security. It supported acts of espionage: under General
Keith Alexander – who was appointed by Donald Rumsfeld in 2005 and remained in of-
fice until 2014 – the National Security Agency (nsa) spied on Petrobras. In addition, it
supported coups in Paraguay, Brazil and Ukraine, where it promoted insurrectionary
movements, and imposed sanctions on Russia. Finally, the Obama administration devel-
oped initiatives aimed at expanding neoliberal regulation of the world economy. These
included the Trans-Pacific Partnership (tpp), which harmed the brics by seeking to iso-
late China and weaken its political support in Brazil, South America and Russia.
In the Middle East, North Africa and Asia, Obama’s liberal imperialism relied on nato
troops, local allies such as the United Arab Emirates, Jordan and Qatar, jihadist and

188 Chapter 4
This fast-diminishing capacity to generate consensus has led big US capital to

instead express its power through the use of force. In doing so it seeks to turn
its hegemony into domination. Ceceña (2001) points to the growing part played
by the US Department of Defense in defining foreign policy, but does not agree
with our view of its implications: that US hegemony is in deep crisis with little
chance of playing a major role again.32
ercenary groups, and the use of advanced military technology such as drones. In this
m
way it sought to reduce the economic, political and social costs of US intervention. Its
strategy consisted of continued attacks on the so-called axis of evil, including the over-
throw of some regimes (Libya and Syria); opening up spaces for the liberal institutionali-
sation of Islamism in territories conquered through war (Iraq) or through resistance and
insurrection (Egypt, Tunisia, Yemen, Algeria and Palestine), and destroying radical anti-
American and anti-European Islamism by making Al Qaeda its main target. However, its
strategy was riven with contradictions. For one, its support for emerging political forces
clashed with the interests of old powers allied to the US, preventing the advance of polit-
ical-institutional forces such as the Muslim Brotherhood in Egypt and the strengthening
of the Palestinian Authority and encouraging jihadism. In addition, the failed economic
and social restructuring of occupied states such as Iraq exacerbated internal conflicts and
led to renewed civil war after US troops left. Lastly, in a context of systemic chaos, US
support in the form of finance and arms sales to unstable insurrectionary groups via in-
termediaries (Turkey and Qatar) rather than directly only favoured the spread of new
anti-American jihadisms such as Islamic State.
Obama’s foreign policy produced poor results. His nuclear deal with Iran was undone
by Trump. So too was his attempted rapprochement with Cuba, which had also lacked
support from the Republican majority in Congress. The Trans-Pacific Partnership was
abandoned in favour of unilateralism and tariff protectionism; support for the liberal in-
stitutionalisation of Islam met stiff resistance from Israel, the Egyptian military and re-
gional oligarchies, and attempts to forcibly dismantle the Iraqi, Libyan and Syrian states
caused even greater political instability, leading to civil wars and chaos. Trump’s election
has brought an explosive combination to bear on the US government: the return of the
Republicans, who ever since the Reagan era had always expanded military spending far
more than the Democrats; the turn towards unilateralism and the use of force, and a char-
ismatic political leader whose unpopularity leads him to seek confrontation with external
and internal enemies. All this makes international conflict more likely, and in a context of
declining US economic power, such conflicts are increasingly difficult to control.
32 In a more recent work the author does draw closer to world-system theories, albeit with
contradictions. On the one hand she asserts that “As a source of Western and/or capitalist
systemic legitimacy, US hegemony is visibly decaying” and that “the limits of US hege-
mony are the limits of capitalist hegemony, and they coincide in their decline” (Ceceña
and Sader 2002, 246). But she also affirms that “US hegemony in the world today is an in-
disputable fact, and no other power can challenge it, even though it develops in a context
of permanent contradiction and competition at every level” (Ceceña and Sader 2002,
245–246).
The crisis of historical capitalism is not just a crisis of its mode of production, but also
of every dimension that ensures its historical existence, such as an interstate system or-
ganised by hegemonies and the power of each hegemonic state.

The problem of turning hegemony into domination brings us in turn to the

issue of empire. Different authors have to varying degrees defended the thesis
that US hegemony is getting stronger and becoming an empire, including
François Chesnais, Pierre Salama, Maria da Conceição Tavares, José Luís Fiori,
Luiz Gonzaga Belluzzo, João Manuel Cardoso de Mello, Franklin Serrano, Car-
los Medeiros and Susan Strange. In their account, globalization was a US gov-
ernment initiative that in taking the dollar off the gold standard and ending
the fixed exchange rate regime imposed the free movement of capital,
free-floating exchange rates and the flexible dollar standard. Regulating inter-
national transactions in this way shifts the centre of capital accumulation to-
wards the financial sector. Financial logic directs productive sector investment
too, steering it mostly towards currency and stock market speculation. Thus for
the above authors a financialised regime of accumulation has been established
that has overcome the cyclical nature of capitalism and created a process of
permanent depression rooted in surplus value appropriation which the United
States has avoided by mopping up world-economic surpluses. In institutional
terms this process depends on the power of the dominant state. Hence these
authors argue that financialisation goes hand-in-hand with armed force. The
new regime of accumulation rests on the indivisible combination of military
and financial power wielded by the dominant state.
Chesnais (1996, 312–318) questions Marx’s arguments in Capital Volume 2,
where he weaves together the strands of his theory of value.33 Marx affirms
that the capitalist mode of production is rooted in surplus value created in the
productive sector by wage labour. Productive capital distributes surplus value
to financial and commercial capitals so as not to have to interrupt the produc-
tive process to commercialise products or accumulate all the resources re-
quired to initiate the process. The process can continue as long as surplus
value-producing capital specialises in productive activities, but it requires the
33 According to Chesnais, “The fact that the unification of the three cycles of capital in the
differentiated moments of a single cycle under the aegis of productive capital was and
remains (in ‘strictly theoretical’ terms) a pre-condition of capitalist relations of produc-
tion putting down national roots (first in England and later in every country that has un-
dergone a real process), does not make it a realistic prospect in the circumstances of late
20th century world capitalism. To wait “for the world economy to become fully formed”
through the spread of productive capital or industrial capital (“the only mode of exis-
tence of capital in which not only the appropriation of surplus-value, or surplus-product,
but simultaneously its creation is a function of capital”) is a little like waiting for Godot
[…] Our response is that the world economy is constituted not according to the model set
out in Volume 2, whatever prestige it might enjoy, but to models much closer to the meth-
odological discussions around financial capital held in the first thirty years of the 20th
century” (Chesnais 1996, 316–317).

190 Chapter 4
surplus value to be distributed under the rules of competition and labour pro-
ductivity to capitals engaged in commercial and financial activity. In analysing
systemic cycles we saw that when articulated, these capitals can temporarily
shift the axis of accumulation to the financial sector. This serves to eliminate
surplus production and lower the price of labour power so that productive
capital can kickstart a new cycle of surplus value production. Debtors’ insol-
vencies limit the accumulation of financial capital, but they reduce the econo-
my’s real assets, and this creates the conditions for a new technoeconomic
paradigm to drive up profit rates and form the basis of a fresh cycle of
development.
The claim that the axis of capitalist accumulation has permanently shifted
towards the financial sector presupposes one of two possibilities: (a) the falling
rate of profit tendency has reached a point of terminal crisis and productive
capital cannot generate a new cycle of development, as Kurtz argues; or (b)
competition has been superseded, and so productive capital is incapable of
challenging financial capital with a set of innovations that cheapens goods and
raises the level of surplus value production. These possibilities lead the au-
thors cited to link the power of finance to the power of the gun and, from there,
to theoretically construct their empire analogy or perspective.
In Ciclo e crise: o movimiento da industrialização brasileira (Cycle and crisis:
the recent movement of the Brazilian economy),34 Maria da Conceição Tava-
res argues in favour of separating the theory of capital valorisation from the
theory of labour exploitation, describing their association as a theoretical trap
set by neomarxists and one of progressive thought’s biggest equivocations (Ta-
vares 1978, 47). As technological and financial development gradually becomes
more autonomous of wage labour and the use of living labour, so, in her view,
capitalism progressively separates labour valorisation and exploitation.35 Valo-
risation becomes arbitrary, and capital, mediated by la raison d’etat, increas-
ingly assumes the form of M-M’ as it valorises itself with state support.36
34 Originally a thesis presented to a contest for Full Professorship at the Economics and
Management Faculty of the Federal University of Rio de Janeiro.
35 Whereas Chesnais sees a conflict between Marx and the financialisation thesis, Tavares
cites him in her support, drawing on his thought in her own unique way. Thus she refes to
the classic passage in the Grundrisse where Marx points to waged labour’s “narrow foun-
dation” for valorising the productive forces of science as evidence that Marx imagined
capitalism would overcome the limits imposed by the rate of surplus value, when in fact
he was illustrating its historical limits (Tavares 1998, 60–61).
36 Navigating in these same waters, Luiz Gonzaga Belluzzo (1999, 116) asserts that M-M’ ex-
presses the real substance of capitalist accumulation and expression of its development
and maturity: “Capitalism is the regime of production in which accumulated wealth in
the form of money is ready to turn inwards in its quest to reproduce itself. M-M’, not

For Tavares, the US state guarantees capital’s valorisation globally through a

mixture of strong dollar and gunboat diplomacy. This kind of diplomacy is
backed up by the dollar’s standing as an international currency and the coun-
try’s position as the only global superpower in the post-Cold War era. Imposing
a flexible dollar standard has allowed the US to raise interest and exchange
rates enough to attract external capitals and stimulate its own development.
This creates asymmetrical growth rates, which favour the US at the expense of
the world economy. The overwhelming power it enjoys as a result could trans-
form its hegemonic rule by consent into total domination and prove enough
“to warn anyone off questioning the US’s hegemonic position within the capi-
talist system” (Melin and Tavares 1997, 81). But as the author points out, in the
short-term imperial power built on losses inflicted on those most vulnerable
could make locally-based resistance look like an attractive policy option, and
in the medium term might encourage alternative political projects at the re-
gional level. As José Luís Fiori notes, however, that could be some way off:
With the current Anglo-Saxon advance on the world, we are witnessing

something very similar to England’s unhindered advance between 1815
and 1880. With this expansive movement the empire’s core might not
face any threat at all until the system’s central nucleus is recomposed.
fiori 2001, 233
Fiori suggests that a future collapse of the US imperial system could open the
doors to a new wave of capitalist expansion, following the historical pattern
seen in the way resistance to the Spanish Empire led to the creation of mercan-
tilist states and resistance to the British Empire brought forward late capital-
isms (Fiori 1998, 1999, 2004, 2008). In O mito do colapso americano (The myth of
American collapse), he partly reworks his approach to provide his own version
of the shared hegemony thesis. In this account, the emergence of China and,
less so, Russia point to rising global competitive pressures and the relative de-
cline of US power, possibly leading to a shift in the structural axis of world
power. But this new and drawn-out imperialist contest, which has barely be-
gun, is unlikely to threaten the central role of US financial wealth and the dol-
lar. Instead, and despite the rivalries, it will probably increase the degree of
M-C-M’. represents this process in its pure form, one that befits the idea, free from the
inconveniences and impediments represented by the material forms it assumes. This
is not a deformation, but the perfect expression of its substance, insofar as money is
both the precondition and the result of the process of wealth accumulation under
capitalism.”

192 Chapter 4
fusion with said wealth. For Fiori, this period began in 1970 and resembles the
secular periods of 1150–1350, 1450–1650 and 1790–1914 (Fiori 2008).
We would respond to the above approaches by making the following points:
a. Theories arguing that capitalist accumulation has been structurally
displaced towards a financialised regime cannot be sustained. They ulti-
mately end up envisaging the global suppression of competition – a sce-
nario bereft of any historical or empirical basis. There are no signs of
suppression of the modern world system and interstate system, and there
is nothing stopping other states or regions from introducing more pro-
ductive technological trajectories that endanger or impose limits on the
concentration of wealth in the states dedicated principally to surplus
value appropriation. Because Marx located competition as an indispens-
able part of capitalist accumulation, he cannot be used to defend the idea
that capital is able to use political power to self-valorise. Self-valorisation
is necessarily limited to the realm of capital accumulation, which was
only able to globalise once it rooted itself in its own mode of production.
It is a mistake to see the M-M’ formula as representing the substance
of capital and its highest stage of development, and Marx explicitly
rejects such an analysis. In the Grundrisse, he highlights the dialectical
relationship between the financial and productive forms of capital accu-
mulation, effectively showing that whilst the former are relatively
autonomous, they cannot become fully independent of the development
of fixed capital.37 Tavares’ critique of the neomarxists, in which she seeks
37 In the Grundrisse Marx points to what he calls a “pretty contradiction” between the mate-
rialisation and fluidity of capital. It is in its aspect as fixed capital – when capital loses its
fluidity and becomes identified with a given use value – that developed capital most
clearly presents itself. Machinery then appears as fixed capital, and fixed capital as the
most adequate form of capital in general. Fixed capital, however, is immobilised, and
capital is indifferent to every specific form of use value, circulating capital being the most
adequate form of capital, rather than fixed capital.
“Precisely in this aspect as fixed capital – i.e. in the character in which capital has lost
its fluidity and become identified with a specific use value, which robs it of its ability to
transform itself – does developed capital – to the extent we know it so far, as productive
capital – most strikingly manifest itself, and it is precisely in this seemingly inadequate
form, and in the latter’s increasing relation to the form of circulating capital in No. 2 [the
small-scale circulation between capital and labour capacity – c.e.m.], that the develop-
ment of capital as capital is measured. It’s a pretty contradiction. To be developed. […]
Machinery appears, then, as the most adequate form of fixed capital, and fixed capital, in
so far as capital’s relations with itself are concerned, appears as the most adequate form of
capital as such. In another respect, however, in so far as fixed capital is condemned to an
existence within the confines of a specific use value, it does not correspond to the con-
cept of capital, which, as value, is indifferent to every specific form of use value, and can

to dissociate valorisation from exploitation, or surplus (profit) from sur-

plus value, is also flawed. Financialisation can only redistribute surplus
value from the productive to the financial sector, and does not result in
any increase in the rate of exploitation of labour power. If it happens to
result in the mass of profit increasing, then that increase must, regardless
of how it is appropriated, be supported by an increase in the rate of ex-
ploitation, which is assisted by the rise in unemployment that accompa-
nies financialisation.38
b. There is no empirical basis for arguing that the world economy has en-
tered a period of permanent depression overcome only by the United
States through its use of its powerful financial assets to mop up surplus-
es.39 The evidence points to a recovery in the Kondratiev cycle’s long
growth period.40 As we have maintained, this is a Kondratiev cycle with
its own intensity and length. There are strong signs that since the recov-
ery sub-phase of the current Kondratiev cycle ended in the year 2000, the
model of growth has not benefitted the US over the world economy.
c. The idea that we are witnessing a new ‘flexible dollar’ model that allows
the United States to engage in strong dollar diplomacy and steadily fi-
nance its public deficits and balance of payments fails to withstand clos-
er analysis (Fiori and Tavares, 1993, 1997; Fiori, 1999). The notion that the
US can finance its imbalances by printing dollars represents possibility
more than fact. Politically, such a policy might serve as a guarantee to
foreign investors seeking to acquire external resources, but if it is actually
applied writ large in order to maintain US purchasing power then the
dollar would plunge in value, and still deepen external account deficits.
adopt or shed any of them as equivalent incarnations. In this respect, as regards capital’s
external relations, it is circulating capital which appears as the adequate form of capital,
and not fixed capital.” (Marx 1973, 679, 694).
This dialectic between fixed and circulating capital is a permanent feature of capital-
ist development, and it is incorrect to identify capital’s “substance” with one or other of its
forms.
38 Here we are not considering the theories of crisis and cycles that base themselves on the
fact that this convergence does not always take place, and that it is just an average of the
swings deviating away from it, as we saw in Chapter 2.
39 The growth of the world economy has led some neo-developmentalists to take a certain
distance from theories of a long global depression and to try instead to weld together
theories based on a stronger usa and shared hegemony. They belatedly recognise world
growth whilst asserting the centrality of financial accumulation and the flexible dollar
and their convergence with new centres of accumulation of power of equal weight. See
Fiori (2008).
40 This analysis coincides with that of researchers of the stature of Orlando Caputo (2000b,
2001a, 2001b).

194 Chapter 4
That could trigger a worldwide run on the dollar and the loss of its ability
to act as the vehicle currency for international transactions. The effects of
zigzagging between appreciating the dollar in the belle époque and then
depreciating it to assert the privileges of seigniorage are wide-ranging but
still subject to the limits imposed by the currency’s credibility among pri-
vate investors and the political and social costs which these transfers im-
ply for the foreign public creditors who underwrite them.
d. US-backed gunboat diplomacy as mentioned above is not viable in the
long term and is unlikely to bring about a new international order. We
noted that the centrifugal tendencies in the world economy are extreme-
ly powerful and a coercive central power would struggle to contain them.
Concentrating enough military, financial and ideological resources to de-
fend an imperial order is so difficult as to make the costs incalculable.
The international isolation experienced by the US when it went to war
against Iraq and the exhaustion that George W. Bush’s Republican gov-
ernment suffered domestically show just how far the imperial project
and US hegemony have come up against their own limits.
e. Finally, there is the theory of shared hegemony, which posits that the
convergence of China and US financial hegemony since the 1990s has a
long-term future despite the growing rivalry between the two. But it can
only last in the short or medium term and is unlikely to survive the next
30–40 years of systemic chaos. The modern world system offers no his-
torical precedents of secular periods of shared hegemony. It is rather a
situation that occurs during the stages of hegemonic crisis. Thus the pe-
riod we expect to open up in 2015/2020 is far more likely to resemble that
of 1790–1815 or 1914–1945/1950, when the hegemonic crisis reached break-
ing point and the fight to overhaul the institutional foundations of the
world economy began. It was during those periods that almost every
Iberoamerican country achieved independence and a third of humanity
began to live under socialist regimes. The crisis of 2008 showed how
much shared hegemony had already broken down. Whilst in 2005–2008
China bought 49.3% of the bonds in public debt the US needed to sell; in
2009, when Chinese growth rates dropped, that figure fell to 19.6% of the
Treasury’s financing needs. It escaped recession by launching a US$500
billion aid package to stimulate internal demand and promoted the first
meeting of the brics (Brazil, Russia, India and China), which publicly
raised the possibility of a common alternative to the dollar.41 The process
of creating a geopolitical alternative to US hegemony has only just come
41 See US Department of the Treasury n.d.

into view, but will need to develop significantly in 2015/2020. It is hard to

imagine the Chinese people agreeing to finance American economic par-
asitism for much longer as they continue down the path of accelerated
social and economic empowerment. And if that is what determines the
Chinese government’s social and political legitimacy, then the chances of
shared hegemony developing further would appear to be limited.
Examining US hegemony allows us to shed light on issues of crucial theoreti-
cal and political importance to popular movements and pinpoint the tensions
between US social movements and the imperialist-controlled state apparatus.
This will help antisystemic movements come together in a historical bloc with
social forces in the US and define a common programme for managing the
world economy – one focussed on democratising international political or-
ganisations, fighting super-exploitation, and promoting peace and ecological
sustainability. It also opens up a space for examining the situation of periph-
eral countries in a way that stresses their internal power configurations and
possible responses to neoliberalism. This issue was addressed by dependency
theory, which explained developmental patterns in peripheral countries on
the basis not of externally imposed determinations but of how such internal
configurations related to the world economy and its power structures. This
dependency perspective was present in the work of a whole generation of so-
cial scientists and most notably Theotonio Dos Santos, Ruy Mauro Marini,
Florestan Fernandes, Fernando Henrique Cardoso and Enzo Falleto, all of
whom to varying degrees offered new frameworks for understanding the capi-
talist world-economy.
In the next chapter, we evaluate dependency theory’s contribution to the
development of the peripheral countries in light of the social processes un-
leashed by globalisation. We examine how the current stage of the modern
world system’s evolution has put the issue of dependency back on the agenda
by adding a new dimension to the world economy’s integration that will shape
both its historical configuration and the responses of popular and antisystemic
movements.

Chapter 5
Dependency and Development in the Modern

World System
1 The Development Question: Past and Present
In the post-war period development became a key issue for the world econo-
my. This reflected a consensus at the international level to cater to different
interests and needs. The systemic chaos produced by the crisis of British hege-
mony had broken the back of the modern world system, leaving a trail of de-
struction across the centre (Western Europe), semi-periphery (Japan and the
ussr) and periphery (Eastern Europe). The non-European peripheral regions
were also badly hit. The crisis of the world market had impacted upon the in-
ternational division of labour and spurred the decline in primary commodity
prices. This led to major social tensions and the birth of revolutionary move-
ments that in varying degrees confronted agrarian oligarchies and imperialism
in the name of nationalism and development.
With the end of the Second World War the recovery of the world economy
that had begun in the late 1930s reached a cul-de-sac. Based on the expansion
of military spending and centred on the United States, it could only be sus-
tained by resolving the problems associated with the end of British hegemony,
which were now preventing the world market from expanding. It was therefore
crucial to (a) establish a new world monetary standard to reactivate interna-
tional credits and payment systems; (b) rebuild European economies and im-
port capacities ruined by war and the loss of colonial rents following the crisis
and collapse of the European empires; and (c) address the demands for devel-
opment and/or self-determination coming from various nationalist move-
ments in the periphery who were threatening the international division of
labour organised by historical capitalism.
Development would become crucial to the way the United States organised
hegemony, and together with self-determination it served as the ideological
glue holding together its systemic power to coordinate the peripheral coun-
tries. Meanwhile in the core and semi-peripheral countries the ideological ba-
sis for its systemic activity was the defence of freedom and its irreducibility to
equality, which drove a wedge between social democratic and socialist move-
ments on the one hand and communists on the other. Modernisation theories

Dependency and Development in the Modern World System 197
were to play a key role in the spread of US ideological influence throughout the
peripheral countries, and were used to try and reconcile local nationalisms
with the world system’s new power structures. Meanwhile, in the centre and
semi-periphery, liberalism and military Keynesianism were its chief ideologi-
cal tools of hegemonic persuasion as it combined warfare and welfare in the
Cold War to militarily occupy Western Europe.
From the 1950s to the 1970s, politics and social sciences in Latin America
and the wider world debated their responses to the results achieved by the
peripheral development proposals borne of and inspired by US hegemony.
Then in the 1980s and 1990s the world economic crisis and the defeat of anti-
systemic movements relegated these arguments to the sidelines as stabilisa-
tion and anti-inflationary policies took centre stage. But since the world
economy began expanding once again it has triggered a new antisystemic of-
fensive and revived the discussion around national, regional and global paths
of development. And this time round the development debate has been en-
riched by ecological and democratic questions, which are understood not just
in environmental and political but also social, economic and cultural terms.
With globalization and the historical evolution of the modern world system
as its context, this chapter takes stock of development proposals that are based
on the main theoretical approaches to articulate the periphery with global
capitalism. These approaches include modernisation theory, national-
developmentalism, dependency theory, endogenism, neo-developmentalism,
neoliberalism and world system theories. We do not intend to give a detailed
assessment of the debates around them – a task beyond the scope of this
work – but rather to address some of their main arguments. And given that
dependency and modern world system theories are in our view so crucial to
the organisation of antisystemic movements, it is their contributions to which
we will pay most attention.
2 National-developmentalism and Modernisation Theories
National-developmentalism emerged from the crisis of British hegemony and

its international division of labour, wherein the central countries specialised
in industrial production and the periphery in exporting primary commodities.
This division was justified by David Ricardo’s theory of comparative advantage.
For Ricardo, international trade has the potential to maximise human well-
being by raising productivity and cheapening the value of goods whilst main-
taining income levels. For this to happen, countries should specialise in

198 Chapter 5
roducing goods that offer a comparative advantage, and through trade they
p
then all benefit from the resulting higher labour productivity.1 In his perspec-
tive, capital and labour’s international mobility is residual and limited, and so
trade represents the only way to spread the rise in productivity. This supposed
lack of mobility leads Ricardo to posit that the theory of value does not apply
to international economic relations. This limitation seriously reduces compet-
itiveness between different capitals, as long as they specialise. If production
costs fall in one state this does not put the other national productive structures
in danger because they complement one another. If British producers manage
to cheapen the unit cost of cloth relative to wine, then the Portuguese will
share in the benefits because the wine they export to the English market will
become relatively more expensive. The fruits of technical progress can then be
shared by setting a price for cloth that allows the English to obtain more wine
just as it allows the Portuguese to obtain more clothing. Specialisation makes
countries either industrial or agricultural without any prejudice to countries
that perform activities representing less intensive technical progress.
Although Ricardo, an advocate of Britain’s industrialisation, allowed for a
degree of ambiguity and doubt in developing his principle, neoclassical theory
turned it into an abstract model with scant regard for historical reality.2 The
Ohlin-Samuelson model took its generalising claims a step further to argue
that national specialisation should be based not on comparative advantage in
commodity production but on the provision of factors of production. The
model explicitly proposes that countries with high capital concentration
should specialise in industry and those with plenty of land and workers should
specialise in agriculture (Vilarreal 1979).
Comparative advantage theory henceforth became an axiom of economic
liberalism. It was used to justify the spread of the gold standard, trade and
capital account liberalisation,3 and orthodox monetary policy across the
world-economy. But the bright and harmonious future it promised never
1 In Ricardian theory, national specialisation is determined by productivity differentials. The

condition for international trade is that within States productivity relations differ between
the different products. A country should specialise in producing whichever product gives it
the best productivity differential. To take Ricardo’s example, exporting Portuguese wine al-
lows Portugal to obtain more fabrics than it could produce internally, and England to obtain
more wine by selling fabrics than it would be able to produce itself.
2 Although Ricardo’s classic work On the Principles of Political Economy and Taxation (Ricardo
1817) argues against the Corn Laws and advocates the development of English industry and
specialisation through foreign trade, it still acknowledges on several ocasions the advantages
to a country of specialising in industry rather than less productive activities.
3 Even accepting that the circulation of capitals is limited and residual, barriers should not be
put in its way because it can still help diffuse the productivity generated by international
trade.

aterialised. Instead said policies caused a slow but ongoing decline in the
m
prices of primary products in relation to industrial products which accelerated
during the world economy’s crises. From 1876–1880 to 1911–1913, the price ratio
of primary commodities to manufactured goods fell from an index of 100 to
85.8. During the interwar crisis it declined even further, hitting a low of 64.1 in
1936–1938.4
The income lost by peripheral countries in this way made it ever harder for
them to sustain economic growth.5 The orthodox solution applied to the
balance-of-payments crisis was deflation and reduced internal demand. Social
tensions piled up and gave birth to revolutionary movements that sought to
turn national states’ attention towards industrialising Latin America (or Asia
or Africa), winning the right to self-determination and state-led modernisation
of their countries. These revolutionary processes brought uneven results. They
depended on national bourgeoisies exploiting the space opened up by the cri-
ses of imperialism and the agro-exporting oligarchies to push economic devel-
opment. That meant restructuring the State and turning the public policy
paradigm into one centred on building infrastructure and creating the institu-
tional conditions for industrialisation. This issue was examined in depth by
Vania Bambirra, Theotonio Dos Santos, Fernando Henrique Cardoso and Celso
Furtado in Latin America, and in Africa by Frantz Fanon.
Lasted throughout the 1940s and 1950s, this process of State and public pol-
icy restructuring went hand in hand with a new theoretical paradigm which
brought a new understanding to international economic relations and Latin
America’s place within them and proposed new pathways to global insertion
based on countries redefining their internal policies. Known as national-
developmentalism, it was best expressed and most widely disseminated by the
United Nations Economic Commission for Latin America and the Caribbean,
ecla (cepal in Spanish).6 In its initial phase the main architects of the
4 See Raul Prebisch’s classic work, The Economic Development of Latin America and its Principal
Problems (1950), written as an introduction to ecla’s Economic Survey of Latin America 1948
(ecla 1948) and later included in the organisation’s 50th anniversary anthology (eclac
2016, 109–128).
5 In Argentina, an example par excellence of adherence to British hegemony and the gold
standard, per capita annual economic growth plummetted from 2.9% in 1900–11 to 0.7% in
1912–29 before falling into negative figures in 1930–38. In contrast, Brazil achieved better re-
sults by using its monopoly control over the international coffee supply to defend interna-
tional prices as a policy, purchasing surplus coffee by printing and devaluing the national
currency. Hence it suffered less in terms of economic dynamism, with per capita annual
growth falling from 1.9% between 1900 and 1911 to 1.4% in 1911–29. (Maddison 1997, 280).
6 In 1984 the organisation’s English acronym was changed to eclac – the Economic Commis-
sion for Latin America and the Caribbean. It is referred to herein as ecla or eclac (as ap-
propriate) and cepal where referring to Spanish-language sources. – Trans.

200 Chapter 5
cepalista school of thought were Raul Prebisch and Celso Furtado.7 They
launched a blistering attack on liberalism and the theory of comparative ad-
vantage, and advocated industrialisation as the way to break through the im-
passes of peripheral development. With the national bourgeoisie too weak to
take the path of Schumpeterian enterprise alone and foreign capital uninter-
ested in industrialising the periphery, the process had to be led by the State. It
did this by implementing import substitution policies. These policies sought to
internalise the manufacture of goods consumed that were hitherto imported,
i.e. to produce those same goods domestically. This meant the State had to ac-
tively intervene in foreign trade and ensure foreign exchange export earnings
were no longer used to pay for luxury imports but to finance national
industrialisation.
The import-substituting industrialisation process consisted of three main
stages: the substitution firstly of light consumer goods, then of durable con-
sumer goods and finally of producer goods. But as each of these stages elimi-
nated the need to import products now made internally, so they also created
new import needs relating to the inputs required to internalise production. As
the process unfolded these new import needs became ever more rigid, shifting
away from consumer goods towards intermediate and capital goods. Striking a
balance between foreign exchange earned from primary commodity exports
and the resources needed to import machinery, intermediate goods and manu-
factured raw materials became ever harder and required expert State
planning.
How did Prebisch and Furtado expect to achieve that equilibrium between
a primary product-intensive export pattern and an industrial component-
intensive import pattern when, pointing out the worsening terms of trade be-
tween primary and industrial products, they were so critical of the theory of
comparative advantage? To answer that, we must pause to consider their ex-
planation for the declining terms of trade. They identified three main contrib-
utory factors:
a. The low income-elasticity of primary products. The supply of primary
products was limited by greater rigidity of demand once industrialisation
7 Prebisch formulated the ideas at the heart of cepalista thinking between 1943 and 1949. This
followed his experience as the Argentine under Secretary of Finance in the 1930s, when he
found his neoclassical background to be inadequate to the task of tackling a national crisis in
the form of a major balance-of-payments crisis, which was linked to the declining volume
and value of Argentina’s commodity exports. According to Octavio Rodriguez (1981), he first
proposed a conscious industrial policy in 1943, and used the core-periphery concept for the
first time in 1946.

and individual incomes reached a certain level. The more industrialisa-

tion advanced, the more primary products were replaced by synthetic
raw materials with an ever-greater manufactured component. In
addition, rising incomes meant individuals consumed fewer primary
products. The latter were gradually replaced by manufactured and semi-
manufactured products, and food production itself became more indus-
trialised and chemical-intensive. The demand for peripheral exports
was also limited by the centre’s cyclical shift from Great Britain to the
United States. The US reduced its import coefficient by putting up pro-
tectionist barriers and promoted agriculture that was highly intensive in
technical progress, which it combined internally with industrial
development.
b. Surplus rural labour in peripheral countries, deriving from both the inelas-
ticity of their primary commodity exports and, as Celso Furtado notes,
a colonial agrarian structure. Surplus labour applies downward pressure
to wages, and this affects final product prices understood as the total cost
of factors of production (capital, land and labour). A dual productive
structure thus emerges in the periphery: on the one hand, a modern and
capitalised agro-exporter sector geared towards the international market
and supported by a spontaneous and incipient industrialisation process
that only supports the export apparatus and a limited number of sectors
internal market sectors; and on the other, a low-productivity agricultural
subsistence sector not absorbed by the internal market, which offers a
refuge to labour in times of cyclical crisis.
c. Organisational differentials in the way business and labour in central coun-
tries defend the prices of their factors of production compared to the periph-
ery. The high level of property concentration and mobilising power
enjoyed by business and labour in the core drives technological dyna-
mism and prevents lower costs being transferred to prices. In the periph-
ery however, surplus labour restricts workers’ ability to organise and win
higher wages. As a result business has no incentive to innovate, as it sees
no need to cut labour costs via technical progress. Conversely, in the
central countries wage pressure is central to why businesses pursue tech-
nological dynamism as a means of saving on labour. However, rising
internal demand makes it possible to maintain full employment and re-
muneration differentials between capital and labour.
Both unequal exchange, in which lower costs are not passed on to manufac-
tured good prices, and the deteriorating terms of trade, which represents the
falling price ratio of primary to industrial products, were a result of the periph-
ery’s continued articulation with a decaying international division of labour.

202 Chapter 5
Industrialisation appeared as the solution to these problems, but one that re-
quired considerable planning.
Prebisch and Furtado identified a natural tendency for the periphery to in-
dustrialise which they called spontaneous industrialisation. They observed
that it was stimulated by cyclical crises and inflation, but produced disequilib-
ria in the balance of payments and unfulfilled wants among the population.
During lean periods of the cycle, primary product prices declined quicker than
those of manufactured products, resulting in a balance-of-payments crisis.
Governments found it hard to correct these imbalances through deflationary
processes and so sought an alternative in currency devaluation and import
substitution. This alternative protected the internal market and helped local
industry to develop. Local industry expanded during export sector crises, as
Celso Furtado noted in his first article on economics, Características gerais da
economia brasileira (General characteristics of the Brazilian economy) (1950).
In periods of cyclical growth the price relation was inverted as primary com-
modity prices outstrip those of manufactured products. This encouraged mon-
etary illusions and export spending levels that were unsustainable on the basis
of the overall cyclical trend, because over its full course the prevailing tenden-
cy was one of declining primary commodity prices. Industry developed in ‘stop
and go’ style and tended to stagnation due to the lack of foreign exchange to
pay for imports.
In their view these barriers to peripheral development could only be over-
come by a State-led process of import-substituting industrialisation. This was
vital because of the lack of savings available to import the supplies needed to
internalise industrialisation in the periphery. Planning needed to focus on at-
tracting and suitably allocating resources, reducing waste and setting priorities
that factored in rising productivity and wages in peripheral countries. It was
also crucial to change the composition of imports during the spontaneous in-
dustrialisation process. That would involve tightly restricting luxury consumer
imports and putting available resources into whichever investments would
maximise production and income, thereby creating surpluses with which to
purchase machinery and equipment. Prebisch presented the core elements of
this approach in The economic development of Latin America and its principal
problems (1950), written as an introduction to the Economic Survey of Latin
America (ecla 1948). In it he tried to find a path through the impasses stand-
ing between peripheral countries and the fruits of technical progress in the
world economy. The key points of his proposal were:
a. Planned industrialisation would both increase labour productivity in pe-
ripheral economies and, at the same time, largely resolve the problem of

deteriorating terms of trade by absorbing their surplus workers. The lat-

ter would be achieved by drawing in the mass of people who either did
not work in agriculture or were engaged in relatively unproductive activi-
ties in the wider economy. Furthermore, by paying better wages, industry
would force other sectors to raise wages and also increase productivity to
pay for those higher wages. In an economy geared towards full employ-
ment both workers and bosses would be better organised and export
prices could be defended through cooperation between exporting coun-
tries, as well as through international economic institutions and regional
integration; and
b. foreign capital would be crucial to making substitutive industrialisation
work. The extra payments to foreign capital should come out of the in-
creased product that its use implied. Foreign capital should temporarily
complement domestic efforts to generate savings, but as the productivity
and income differentials between core and periphery narrowed, so its
participation in the industrialisation process should drop off. The periph-
ery would need the participation of foreign capital until it managed to
substantially alter the composition of its exports, because owing to the
low elasticity of primary commodities the decline in the terms of trade
could not simply be resolved by industry absorbing surplus rural labour.
This situation represented a dependency external to the cycles of the
central economies and their decision-making centres.
However, the results of this process were not as expected. The rise in imports
to meet the needs of industrialisation put real pressure on foreign exchange
reserves and created a demand for more foreign capital to finance and invest in
industrial development. The situation led to a crisis in national-developmen-
talist thinking which then entered into decline from then on. National-
developmentalists had not anticipated a growing role for foreign capital in
organising industrialisation. Understanding such capital from a Ricardian per-
spective, they had assumed the relative international immobility of the factors
of production. In their perspective the role of foreign capital was restricted to
supplementing internal savings and was to be subordinated to national plan-
ning, which would determine how it would be used. The State should therefore
not only manage foreign trade and national savings – it should also industri-
alise and develop the internal market by creating a basic infrastructure in
energy, transport and steelmaking, in view of national capital’s low levels of
concentration and foreign capital’s lack of interest in performing such tasks.
This emphasis on the relative immobility of foreign capital blinded early
ecla thinking to the global logic of circulating capital. When it entered

204 Chapter 5
eripheral economies it was perceived as a saving which, despite the service

p
payments implied, would consistently increase the national resources avail-
able for investment purposes.8
Disillusionment with the results of import-substituting industrialisation
comes over clearly in the 1960s writings of Celso Furtado, notably Development
and Stagnation in Latin America (1966) and Teoria e política do desenvolvimento
econômico (The theory and politics of economic development) (1967). Furtado
claimed that Latin American capitalism hit the limits of its expansion when
import-substituting industrialisation lost its dynamism. In his view it failed to
break with underdevelopment, which he defines as a social formation consist-
ing of dual structures which is incapable of internalising the national econo-
my’s decision-making centres and whose modern sector expands insufficiently
to eliminate unemployment/underemployment and absorb precapitalist seg-
ments. Latin American economies were thus faced with a choice between
capitalism and stagnation, or socialism and development.
For Furtado, 1950s industrialisation had created a new kind of dualism. This
was essentially because it was based on capital-intensive labour-saving tech-
nologies that were suited to central countries with high incomes and expand-
ing service sectors, but not to the periphery. Hence peripheral industrialisation
could not absorb rural surplus labour and actually created new pools of sur-
plus labour in cities and towns. This was reflected in high rates of disguised
urban unemployment that represented the large proportion of urban inhabit-
ants in low-productivity segments. Import-substituting industrialisation had
failed to resolve the issue of the deterioration of the terms of trade. Income
concentration had deepened and the export sector had continued playing the
same role without increasing the ratio of capital to labour. The shift in focus of
import substitution from light consumer goods to consumer durables and cap-
ital goods had produced serious balance-of-payments disequilibria in the
8 As Prebisch argues in The Economic Development of Latin America: “Though the level of pro-
ductivity achieved by some Latin-American countries is such that, by means of a judicious
policy, they would be able to reduce the amount of foreign capital needed to supplement
national savings to moderate proportions, in the majority of them this capital is admittedly
indispensable […] If this capital is effectively used, the increase in productivity will, in time,
allow savings to accumulate which could be substituted for foreign capital in the new invest-
ments necessitated by new technical processes and the growth of the population […] Until a
solution to the fundamental problem of foreign trade is found, care must be taken that dollar
investments, where they cannot be used to further dollar exports, shall contribute, directly or
indirectly, to the reduction of imports in that currency, in order to facilitate future payment
of services.” (eclac 2016, 69,72).

eriphery. The only way to correct these imbalances was by further protecting
p
the national economy. Capital goods had become more expensive as a result.
Producing them internally now required a substantial increase in the national
economy’s relative prices in order to compensate for the high cost of importing
the domestic inputs that made it possible to produce them and the narrowness
of internal markets, which meant they were underutilised in production. All
this had increased the capital–output ratio in the economy as a whole, driving
down the rate of profit and leading to stagnation. The flipside to this process
was the formation of a rentier oligarchy that had taken over the administration
of the State and exploited its active presence across the economy to boost its
income without any matching rise in productivity.
Other cepalistas such as Maria da Conceição Tavares also recognised a crisis
in the import-substitution model. In her 1964 classic, Da substituição de impor-
tações ao capitalismo financeiro (From import substitution to finance capital-
ism), Tavares argued that whilst this particular model had broken down in
Latin America, capitalism had not.9 In her view, ever since the start of the third
period of import substitution in 1954 the growth of industrial output had re-
quired rates of capital formation at a level obtainable only from foreign capital
inflows or through an increase in the purchasing power of exports. Trade rela-
tions could only be improved by resolving the surplus labour absorption issue
and by diversifying exports to include more manufactured products. Tavares
proposed agrarian reform as the key to absorbing surplus labour, as it could not
be achieved with the capital-intensive technologies used to produce capital
goods and consumer durables. She exposed the Achilles’ heel of cepalista
national-developmentalism – it’s silence on the agrarian issue because of the
need to finance import substitution with foreign exchange earned by the agri-
cultural sector. The model she proposed was based on (a) foreign capital in-
flows to overcome the limits placed by trade balances on obtaining foreign
exchange; (b) agrarian reform as a means of absorbing surplus labour and
boosting domestic value added, and (c) a more active foreign policy aimed at
penetrating core country markets, establishing regional integration agree-
ments and diversifying exports.
These dead ends in national-developmentalist thinking left it vulnerable to
attack from modernisation theory, which to some extent shared cepalista criti-
cisms of liberal theory, and opened up an opportunity for foreign capital to
9 She then developed this perspective in Más allá del estancamiento, first published in 1971.
Co-authored with José Serra, it critiqued Furtado’s stagnationist theses. See Tavares and Serra
(1998, 569–588).

206 Chapter 5
play a far more active role in the development of peripheral countries. The
leading exponent of modernisation theory was Walt Rostow.10
Rostow saw his contribution to modernisation theory as part of a collective
endeavour along with Rosenstein-Rodan, Charles Kindleberger and others at
the mit Center for International Studies in the 1950s. The best synthesis of
their work in this period can be found in A Proposal: Key to an Effective Foreign
Policy (1957), where they set out their priorities for the US foreign policy agen-
da. Above all, they argued, the West needed to show that underdeveloped na-
tions could develop from within the free world’s sphere of influence and resist
the temptations of communism. Left to themselves, developing societies
would become the foci of tension and instability as modernisers confronted
traditionalists. It was in US interests for them to modernise as quickly and
peacefully as possible, and so it should assist them by providing the external
capital they needed to achieve their savings and investment goals (Rostow
1990, 436–440).
In 1960 Rostow published his leading contribution to modernisation theory,
The Stages of Economic Growth: A Non-Communist Manifesto. In it he analysed
the trajectory of human development in terms of successive phases of devel-
opment (traditional societies; pre-conditions for take-off; take-off; maturity,
and mass consumption). These stages fitted into what he called a dynamic
theory of production. In his view one universal path to development narrrowly
dictated the way every society evolved. This path was defined by the technical
needs of production, and politics, culture and diversity had to adapt to these
needs in order to raise per capita incomes and investment to the levels re-
quired by each stage of development.
Rostow’s impoverished theory of history came in for harsh criticism from
Latin American thinkers. In the words of Theotonio Dos Santos (1998), it was
one of the worst examples of methodological violence that ever saw the light.
Rostow forged his theory of history under the methodological pretext of coun-
tering the economicism supposedly inherent in Marx’s historical approach.
But the outcome was quite the opposite as he missed the whole point Marx
and Engels make in their writings – that technologies are a product of social
relations and culture, which heavily condition their invention and use. The
social, economic, political and cultural consequences of applying technology
to different social relations vary considerably. As dependency theories and
world system theories would later argue, modernisation theory’s claim that
10 Other authors, such as Bertz Hoselitz, also made noteworthy contributions to modernisa-
tion theory. In Latin America the biggest contribution to this approach came out of the
work of Gino Germani.

different national societies could follow the same path of development was
patently absurd. National societies do not exist in different stages or time-
periods but occupy different positions within one temporal and geographical
space: the modern world system.
Rostow’s approach characterised Latin America as a region in search of the
means of take-off. It needed to create socio-political conditions that would at-
tract enough investment to support sustained growth on per capita produc-
tion. That meant drawing together an elite made up of business owners, politi-
cians, intellectuals and military figures to organise the region on a moderately
nationalist basis. Whilst they should avoid xenophobia and resentment, it was
up to them to harness the State to (a) unify national markets; (b) set up taxa-
tion systems to divert resources into expanding fixed capital; (c) participate in
the international market, applying import-substitution policies if needed, and
(d) allow the participation of foreign capital to stimulate internal saving (Ros-
tow 1960, 1967, 1990).
For modernisation theory, Latin American underdevelopment and its diffi-
culties in achieving take-off could be explained in terms of internal resistance
to the actions of modernising elites influenced and led by the central coun-
tries.11 It was up to states in those central countries (principally the US) and
foreign capital to overcome that resistance. There were both left and right ver-
sions of modernisation theory, which linked it to either mass movements or
economic liberalism. Gino Germani (1981) developed a more left-wing ap-
proach which saw the pressure exerted by social movements as the most dy-
namic factor in Latin America’s transition from a traditional to a modern
world – a shift characterised in his view by the use of mass democracy as a po-
litical instrument. Roberto Campos, on the other hand, linked the issue of de-
velopment to liberalism, mixing pragmatism with eclecticism in the process.
Unlike the liberal Eugenio Gudin, advocate of an agrarian Brazil, Campos
saw industrialisation as a necessary means of development in most of Latin
America.12 Although he accepted the Prebisch/Furtado theory of the deterio-
ration of the terms of trade in various writings, he parted ways with the struc-
turalist perspective on the issue of fighting inflation, which is central to his
11 In Empresário industrial e desenvolvimento econômico no Brasil, Fernando Henrique Car-

doso notes how inappropriate it is to use the term underdevelopment in the modernising
sense of meaning the level of development of a society’s internal features. He points out
that focussing on internal aspects is incompatible with a term that assumes a society’s
articulated insertion into a much wider environment that any measure of development
must take into account. See Cardoso (1964).
12 For Campos, industrialisation was justifiable in countries with population pressures and
a surplus of agricultural labour (Campos 1963, 84).

208 Chapter 5
approach to development. For Campos, inflation in underdeveloped Latin

American countries stems from three factors: pressure from the masses to in-
crease their consumption levels; the “demonstration effect” that leads to them
imitating developed countries’ consumer habits, and government policy. Of
these three factors, the latter was for him the most dangerous and damaging.
Whilst he accepted that the State should intervene more in underdeveloped
than in central countries because of the obstacles created by underdevelop-
ment, he argued that it should do so on a scale far narrower than that proposed
by the cepalistas.
Campos differentiated between three types of State planning. Integral plan-
ning meant the planned investment and consumption typical of socialist
countries. Partial planning was that practiced in some of the more advanced
capitalist countries and inspired in his view by moderate socialist theories that
combined State coordination and targeted investment with market mecha-
nisms. Sectoral planning was the kind most suited to underdeveloped coun-
tries with liberal regimes and relied on what he described as pontos de
germinação – germination or growth points. It rested on the premise that un-
derdeveloped countries were faced with a major contradiction between their
desperate need to plan and their lack of the technical capacity to do so. For
Campos the answer was for State intervention to target the economy’s ‘stran-
gulation points’ or bottlenecks until the right technical resources and a disci-
plined bureaucracy were in place to execute its plans. Meanwhile, the more
underdeveloped countries overcame backwardness, they less need they would
have for planning (Campos 1963, 1967).
Looking at 1950s Brazil, Campos identified economic bottlenecks in the
transportation and energy sectors. These industries had lagged behind nation-
al development because of tariff rigidity, which made investment relatively
unprofitable. For Campos, state intervention in the form of investment was
only justified in certain situations: when investment levels determined low
profitability or the need to mobilise resources on a scale beyond the capacity
of private enterprises; when private monopolies had to be restricted in order to
maintain competition; when national security was at stake, or when local re-
gions needed to be integrated into development. He also set out criteria fa-
vouring specific types of state intervention. Thus indirect controls (tariff, credit
or currency controls) or regulatory controls (prices) were preferrable to direct
control over production, and government participation in investment should
take the form of joint ventures with private capital.
Campos’ policies were designed to bring underdeveloped countries up to
full capacity, at which point consumption pressures would become inflation-
ary and have to be met with a rigid monetary policy (Bielschowsky 1988,

104–132).13 In his view the purpose of public policy was (a) to tax luxury con-
sumption, mobilising resources to support savings and investment; (b) to elim-
inate the inflationary mentality that, whether for paternalistic or ideological
reasons, manifested itself in expansive monetary policies or price controls on
basic services and foodstuffs, and (c) to attract and mobilise external resources
to complement national efforts. He attacked as inflationary import substitu-
tion policies designed to relieve consumption pressures through a combina-
tion of exchange overvaluation and quantitative import controls, claiming
such measures reduced exports and competitiveness and discouraged inflows
of foreign savings.
In his classic 1950 article “Lord Keynes e a teoria da transferência de capi-
tais” (Lord Keynes and the theory of capital transfer), Campos criticised
Keynes’ theory of the relative immobility of the factors of production. He chal-
lenged the idea that capital outflows drive up interest rates in the exporting
country, pointing out that as long as hoarding and underinvestment continue
then capital can leave without producing such an effect, and concluded that
“during periods of weak domestic activity and a growing tendency to hoard, it
is clearly to the investor country’s advantage to export capital” (Campos 1963,
119). This understanding of capital mobility, whilst limited, nevertheless en-
abled him to bring recourse to external capital fully into his argument14 as the
key to overcoming inflation and the technical limitations on planning in un-
derdeveloped countries. By increasing national saving, foreign capital would
soak up the consumption pressures inherent to underdevelopment, enable
incoming private capital to fund investments that were short of local capital,
and as a result narrow the scope of state intervention, thus avoiding inefficien-
cies and possible deviations in price formation.
13 Campos’ concept of ‘full capacity’ is not the same as Keynesian full employment. It is
measured by inflation and places an obligation on the State to adopt growth contain-
ment policies whenever it detects inflationary pressures, regardless of employment
levels.
14 The circulation of capital is determined by its power to generate surplus value and ex-
traordinary profits, not by its effect on local interest rates. Capital tends to move when-
ever doing so means it can increase its global rate of profit and the mass of surplus value
from which it is appropriated. In this way national planning is subordinated to global
planning whilst being integrated into it through the international division of labour.
Although Campos questioned the principles underlying the relative immobility of the
factors of production, he still relied on them in making mobility conditional upon the
effects on the national economy. As such he was unable to perceive or theorise the ex-
portation of capital and economic growth as occuring simultaneously in exporter
countries.

210 Chapter 5
Faced with nationalist criticisms of the 1962–1967 crisis that succeeded the
foreign investment boom of 1955–195915 and pressure to limit profit remittanc-
es, Campos set out to prove that foreign capital did indeed represent a force for
development in underdeveloped economies. To do so he devised a theoretical
model to analyse the impact of foreign capital. With this model he sought to
measure the effect of foreign capital on domestic savings by counting not just
the surpluses that capital inflows produce (the concept of ‘restricted ex-
change’) but also their effect on the current account (‘amplified exchange’) and
on rising net national output (‘overall exchange’). The positive role played by
incoming foreign capital would be made evident by its multiplier effects on
national income, the current account surpluses it produced, and the fact that
it outstripped profit remittances and repatriation, although he stressed that in
the latter case he was not comparing like with like, i.e. he was comparing capi-
tal stock increases to capital flows. He predicted an “increase in the capacity
for domestic saving and, therefore, the economy’s autonomous capacity for in-
vestment” (Campos 1963, 274; italics added). And to attract foreign capital in-
flows he proposed using the automatically functioning mechanism of the free
market and the fluctuating exchange rate (Campos 1963, 271–303).
Campos’ model was theoretically confusing. His criticism of the comparison
between capital flows and stock increases did not hold up because such in-
creases could only take place through flows.16 Furthermore, he dissolved for-
eign capital’s influence on national saving into the much broader dimension of
the expansion of net national income. Instead of first measuring net balances
of foreign capital and then analysing their effect on national earnings, he did
the opposite and prioritised a dimension influenced by a range of other
elements in addition to foreign capital, such as national actors, State policies,
labour super-exploitation and their effect on saving and investment. But the
empirical evidence the model needed flew in the face of its assumptions. For-
eign capital inflow balances were negative except during some short periods;
their influence on the current account were also negative, and the effect on
net national earnings was that the external debt and its service payments
15 Between 1962 and 1967 per capita gdp in Brazil and Latin America grew by 0.3% and 1.6%
per annum, and between 1956 and 1961 by 5.1% and 2.5% per annum respectively (Mad-
dison 2001).
16 This is the criticism Orlando Caputo and Roberto Pizarro would make of the method used
to analyse balances of payments which finally prevailed in international bodies and
ecla. By separating capital inflows from interests, profit remittances and payments for
other services related to incoming capital (technological services, royalties and freight
charges), the balance of payments obscures the actual contribution foreign capital makes
to national savings. See Caputo and Pizarro (1973).

outstripped gdp, leading not to the national autonomy envisaged but to ever
deeper dependency.
The crisis of national-developmentalism was overcome by modernisation
associated with an foreign capital-led alliance of national capital and the State
that sought to lead the region. But the legitimacy of this alliance was seriously
undermined by the 1962–1967 crisis and the offensive launched by Latin Amer-
ica’s mass movements, which would last until 1973. It was in this new conjunc-
ture that dependency theory offered a fresh interpretation of the regional and
global situation.
3 Theories of Dependency
Dependency theories were first formulated between 1964 and 1973. They re-
tained considerable influence in Latin America up until the late 1970s, when
US-backed liberals and conservatives asserted their leadership of the redemoc-
ratisation process. The dependency paradigm was developed through two dif-
ferent methodological approaches. The Marxist approach was influenced by
the Cuban Revolution, the regional limits to developmentalism, and the social,
political and cultural offensive gathering pace across the Third World. It set out
to analyse the Latin American social formation in a creative Marxist fashion
free of Communist Party dogma, and is best represented by the works of Theo-
tonio Dos Santos, Ruy Mauro Marini, Vânia Bambirra and Orlando Caputo.
This dependency perspective influenced intellectual and political circles and
leading thinkers such as Florestan Fernandes, although in other respects their
approach would differ. Fernando Henrique Cardoso and Enzo Faletto were at
the forefront of developing the other view of dependency. Whilst taking ecla’s
theses as their starting point, they also aimed to subvert them. Their Weberian-
influenced approach gained prominence both regionally and internationally.
Theories of dependency represented a leap forward in understanding Latin
American reality. As we saw, both modernisation theorists and cepalistas
viewed backwardness and underdevelopment through the prism of method-
ological nationalism, which sees the world as an aggregate of independent na-
tional economies connected mainly through trade. For them, Latin American
and peripheral countries were backward for historically inherited reasons such
as colonisation, and because of poor internal decision-making that benefitted
parasitical groups over the nation. Upon achieving nationhood, they needed to
rectify and overcome these problems. Rectifying them, however, did not mean
clashing with international structures but rather with internal social groups
and mentalities. It was about going beyond specialised production, so harmful

212 Chapter 5
in the long term; overcoming traditionalism, or using austerity to control the

consumer impulses made so tempting by scarcity. Solutions were as varied as
the diagnosis, but they all involved increasing national decision-making pow-
ers, whether through import-substitution policies or by using the right amount
of foreign capital to further help generate and expand national savings and
revenues. If these solutions were implemented, then Latin America and the
periphery would converge with the central countries in terms of their
economic, political and social patterns and they would develop. Underdevel-
opment was caused by a lag in the formation of the economic, political, social
and cultural aspects of nationality, and once formed development would
follow.17
The dependency approach saw the issue through a different lens, showing
that capitalist development had established a hierarchical international divi-
sion of labour that articulated social classes and groups that at the same time
often belonged to distinct juridico-political structures. In its view, this division
of labour was expanding, meaning capitals and commodities circulated at its
limits. Dependent countries were subordinated to the technological monopo-
lies that articulated this movement, and tended to adapt their productive,
commercial and financial structures to it. The decisions they made became
conditional upon the capitalist world economy, and their dominant classes
went along with this conditionality. The contradictions between them and in-
ternational monopolies were not so acute as to cause conflict. Instead, domi-
nant classes in dependent countries looked to negotiate and compromise.
Control of the national state was important to them because it took the edges
off their own weakness and improved the conditions of their insertion in the
world. Nationality as an administrative instrument was well suited to the com-
plexities of the world economy, but not to autonomous decision-making.
Internal groups were also international, and their own development did not
imply the reproduction of modes of existence enjoyed in the central countries.
Reproducing dependency also meant reproducing a hierarchised international
17 In Brazil, both advocates of State planning and those emphasising the role of foreign capi-
tal claimed to be nationalists. This would trigger nationalism’ s theoretical and method-
ological crisis as an analytical tool, dramatically expressed when Hélio Jaguaribe left the
Instituto Superior de Estudios Brasileños (iseb) after proposing to separate nationalist
means from nationalist ends. Even authors such as Roberto Campos saw themselves as
true nationalists because they considered themselves to be committed to national devel-
opment despite believing it would require a major influx of foreign capital. See Biel-
schowsky (1988).

division of labour. This division represented an economic, social, political and

ideological structure simultaneously national, international and unique to
the world economy. And underdevelopment was established not as non-
development but as a subordinate trajectory within the world economy.
This view of Latin American and peripheral social formations was shared by
the different methodologies proposed for analysing dependency. It was ex-
pressed by Theotonio Dos Santos18 and Fernando Henrique Cardoso/Enzo
18 Theotonio Dos Santos pinpoints what relations of dependency consist of in the following
statement:
“As we can see, dependence is not a relationship between an autochthonous national
economy and another one to which it is subordinated, but a basic relationship that con-
stitutes and conditions the internal structures of the dominated or dependent regions
themselves.
We understand dependence, then, as an economic, social and political situation where
the structure of certain societies is conditioned by the needs, actions and interests of
foreign nations that dominate those structures. As a result, those societies are defined by
the conditioning situation in which they develop and by how they respond to the stimuli
produced by the dominant society. Ultimately, however, their response is determined not
by this conditioning situation, but by the internal forces that make up the dependent so-
ciety. The nature of these internal forces explains both its subordinate position and its
capacity to challenge the external impulses which condition that position.” (Dos Santos
1978e, 13–14).
For Dos Santos, dependency is built on compromise. This notion of compromise runs
through the three levels of analysis that constitute dependency: the international struc-
tures of capital; international economic relations, and the internal structures of countries
targeted by expanding international capital. Compromise or combination of interests is
necessarily linked to a composition of sociopolitical forces in dependent countries who
accept international integration within the limits of the conditioning situation. In Depen-
dencia y cambio social (1972), later included with some modifications in Imperialismo y
dependencia (1978a), he notes that
“A third aspect essential to understanding dependency refers to the articulation between
the dominant interests in the hegemonic centres and the dominant interests in the de-
pendent societies. ‘External’ domination is impractical in principle. Domination is only
possible when it finds support in national sectors which benefit from it […] In showing
the necessary correspondence between the interests of the external dominators and the
interests of the ‘dominated dominators’ (it is from this that the specific character of the
dominant classes in dependent countries emanates), we will show that, despite internal
conflicts which exist between these interests, their interests are fundamentally in com-
mon. The concept of compromise or combination of the diverse interests which com-
prise the situation of dependence is an essential element for the elaboration of a theory
of dependence.” (Dos Santos 1978d, 309). [Above translation based on excerpts cited in
Dos Santos (1973) – Trans.]

214 Chapter 5
Faletto,19 who came up with the classic definitions of a dependency situation.

Nonetheless, despite a degree of convergence in identifying the dependency
situation, differences emerged in the way they interpreted its dynamic, its
developmental patterns and possible alternatives to it. We shall now turn to
how these two visions were laid out and how they responded to these issues.
3.1 The Weberian View of Dependency

The Weberian view of dependency was first set out by Cardoso and Faletto. For
them, dependency is the paradigm governing the development of societies
in the ambiguous situation of being politically autonomous whilst their eco-
nomic relations are determined by the international market. This structure of
domination weighs down upon formally free and sovereign political activity in
such societies, conditioning their potential for development.
Cardoso and Faletto construct dependency as a truly ideal type. Although in
some writings they use Marxist categories, these are clearly secondary to their
sweeping use of the aforementioned Weberian device and do not carry their
original weight.20 They identify structures of domination as the key concept
needed to understand dependency, arguing that class relations should be
located within these structures.21 Their aim then is to describe not the
19 “We must therefore settle on an interpretative approach that highlights the structural
links between the situation of underdevelopment and the hegemonic centers of the cen-
tral economies, but without crediting the latter with being able to fully determine the
dynamic of development. In effect, whilst it is right to assert that in situations of colonial
dependency history – and, therefore, change – appears as a reflection of what happens in
a metropolis, social dynamics ‘in the underdeveloped nations’ are far more complex.
There, almost from the start, we find a doubly linked historical process that creates a ‘situ-
ation of ambiguity,’ that is, a new contradiction. For once local forces decide to create a
nation […] they focus on securing a degree of political autonomy by controlling the mar-
ket situation, but objectively speaking economic links with external markets still limit
autonomous decision-making and action. From a sociological viewpoint, this is perhaps
the core of the problem of national development in Latin America.” (Cardoso and Faletto
1984, 30).
[In translating this and other quotes from Dependency and Development in Latin Amer-
ica, I have drawn on the original Portuguese (Cardoso and Faletto 1984). This is in addition
to reproducing as far as possible the language of the English translation (Cardoso and
Faletto 1979b), and has been necessary because the latter features extensive editing/re-
writing. For simplicity’s sake the former is the source cited throughout – Trans.]
20 We of course acknowledge that Cardoso and Faletto are complex thinkers with diverse
influences, among them Marx, Lenin, Sweezy, Keynes, Kalecky, Schumpeter and Sombart.
But they all they rely on the Weberian device as the paradigm through which to articulate
these influences.
21 “Our basic theoretical problem is how to determine what forms the structures of domina-
tion will adopt, because through these structures the dynamic of class relations can be
understood” (Cardoso and Faletto 1984, 22; direct translation from 1979b).

c ontradictions of dependent societies, but their dynamics, limits and poten-

tial. The development of Latin American societies is articulated through
dependency. National political structures are autonomous, but must choose
between patterns of domination ranging from development/dependency to
stagnation/autonomy.
The ambiguous and contradictory relationship between the economy and
politics, or structure and action, in Cardoso and Faletto’s theory of dependency
replicates the ambiguous and contradictory relationship between pure types
of domination and social action in Weber. For Weber, individuals can act in
two ways: based on a rationality that only acknowledges their own beliefs, or
based on a rationality that acknowledges the effect of the social environment
on their personal goals and its power to transform them into actual outcomes
that were undesired. The first category represents value-oriented rational ac-
tion and an ethic of conviction. The second represents goal-oriented rational
action and an ethic of responsibility. Therefore action which is based solely on
the actor’s convictions and which contradicts the foundations of the type of
societal domination in which he or she is inserted, is irrational in that it pro-
duces an actual and unintended outcome that differs from the intended result.
In contrast, goal-oriented rational action is based on a correlation between
converging means, antagonistic ends and consequences, and can therefore en-
sure that ends take into account their real possibility of being achieved. It thus
constitutes a more rational kind of action.
In Cardoso and Faletto’s definition of dependency, its political aspect is a
weaker variable than the economic aspect. The economic aspect of dependen-
cy is expressed through the formation of a national productive structure geared
towards the external market and wedded via trade, production and finance to
the international expansion of capitalism. In contrast, political activity is con-
centrated in the national juridical-political apparatus, which severely limits its
capacity for decision-making and action. What Cardoso characterises as the
explicit “ambiguity” of the dependency situation actually entails a deeply un-
equal relationship between its economic dimension, which creates a produc-
tive structure marked by structural features and linkages of the dependent
kind; and its political dimension, whose scope for action prevents it from re-
placing those structural and dynamic linkages without almost certainly de-
scending into stagnation, irrationality or adventurism.
Cardoso and Faletto are clearly sceptical of the potential for socialism and
nationalism to establish a different model of development in the periphery,
especially with regard to Latin America:
A society can undergo profound changes in its production system with-

out the creation at the same time of fully autonomous decision-making

216 Chapter 5
centres and their conditioning mechanisms […] a national society can

achieve a certain autonomy of decision without thereby having a produc-
tion system comparable to those in the central developed countries, or
even in some peripheral developing countries. This can occur, for exam-
ple, when a country breaks its ties with a given system of domination
without incorporating itself fully into another (Yugoslavia, China, Alge-
ria, Egypt, Cuba and revolutionary Mexico).
cardoso y faletto 1984, 27
Cardoso underscores these conclusions in a more recent work:
(…) in the face of the challenge of modemity and of the impression that
reason and the market are closely entangled notions, the political con-
cem in vast areas of the South is that the reaction against inequality can
only occur through the strengthening of the national will based upon the
fortress of the state. (…) In many areas of the South, despondency seeks
sublimation in new salvationist theses which substitute for the blind
faith in the inevitability of revolution (which was an attribute of the in-
dustrial world until the coming of the ‘informational societies’), through
the idea of a union of the whole nation against imperialism (or whatever
name is now given to advanced capitalism) (…) These movements create
nothing but matrixes for the local ‘counter-culture,’ with isolated reper-
cussions in the hegemonic centres. Countries (or parts thereof) that are
unable to remake the revolution of the contemporary world and at the
same time to find a niche in the international market, will end up in the
‘worst of all worlds’; they will not even be exploited (…) They will be un-
important and uninteresting for the development of the globalised
economy.
cardoso 1993b, 160–161
Although for Cardoso (1964) dependency represented a postwar form of sub-

capitalism, it was nonetheless compatible in his view with internal market ex-
pansion and development. The new dependency developing under US hege-
mony differed from the classic types of colonial rule associated with Lenin’s
imperialism. It separated its economic and political forms of domination and
invested in dependent countries’ internal markets. “There is a strong trend to
local reinvestment, meaning foreign investments go hand in hand with the ex-
pansion of the internal market” (Cardoso and Faletto 1984, 127). In their post-
script to Dependence and Development in Latin America (1979a), Cardoso and
Faletto wrongly described this stage of dependency as the “internationalisation

of the internal market.”22 A new international division of labour was estab-

lished in which dependent countries produced consumer durables, as well as a
certain amount of industrial raw materials and capital goods. But Department
i only developed precariously in the periphery, and the central countries’ tech-
nological monopoly meant the expanded reproduction of accumulation
required international financing, as it could not be supported by foreign ex-
change earnings under the import-substitution model. The import-substitution
model became exhausted as a developmental framework for Latin America,
and with it so too did nationalism. Local bourgeoisies preferred partnership to
the arduous task of trying to accumulate surpluses autonomously. But interna-
tional financing not only served to invest in new technology. It was also needed
to equilibrate the balance of payments, as the profit remittances, interest pay-
ments, royalties and technical services generated by foreign investments were
often worth more than capital inflows. The tendency to reinvest meant that
such inflows in the form of direct investment became relatively scarce. Foreign
capital preferred to mobilise local savings in other ways: through joint ven-
tures, articulation with the host state, and profits made in the internal market.
Thus technological dependency was accompanied by a financial dependency
that made it possible to balance the external accounts. The outcome, there-
fore, was ‘dependence and development’ – a phrase coined by Cardoso and
Faletto in response to Andre Gunder Frank’s suggestive description of develop-
ment in peripheral countries as ‘the development of underdevelopment.’
Through the so-called internationalisation of the internal market, dependent
capitalism destroyed the very bases of developmentalist nationalism. Whilst
the latter had come unstuck due to the shortage of foreign e xchange under the
22 In “Acumulación capitalista mundial y el subimperialismo,” Ruy Mauro Marini (1977)

rightfully challenges this notion, arguing that what actually occured in the 1955–1980 pe-
riod was the internationalisation of production structures, because the protectionist
structures around import substitution remained intact. See also Marini (1978).
In his acceptance speech upon being awarded an honoris causa doctorate from flacso in
Quito, Cardoso would agree with the points Marini had made 24 years ahead of him, al-
beit without mentioning Marini himself: “When we wrote Dependency and development
in Latin America, in order to emphasise development over dependency […] we focussed
our efforts precisely on showing how the development of the capitalist system had
changed so much that peripheral countries could industrialise. I am Brazilian, and in Bra-
zil it was obvious that a huge transformation had occured and Brazil had made a massive
leap forward. The changes that took place in those years went much deeper than what we
could then see. The expression I used in the book was wrong: I referred to the ‘interna-
tionalisation of the internal markets,’ whereas in fact it was production that was interna-
tionalised, not the markets.” (Cardoso 2001).

218 Chapter 5
import substitution model, the new dependency enabled the organic compo-
sition of peripheral economies to increase at a quickening pace and shifted
Latin American capitalism towards producing relative surplus value, albeit at
the expense of deepening technological and financial dependency.
Cardoso and Faletto proposed ‘negotiated dependency’ as an economic and
political model for Latin America. The region’s authoritarian turn in the 1960s
and 1970s did not reflect any structural need on the part of bourgeois rule, but
was rather a response to attempts by popular movements and their leaders to
pursue autonomy using political means. Their efforts represented a challenge
to economic dependency and sectors with a stake in it, and so various bour-
geois and middle class fractions united with the military in a single block to
contain any risk to the capitalist order. They built an authoritarian state that
reassured capital whilst taking away the forms of political expression available
under the competitive democratic system. As a result, the bourgeoisie ended
up hostage to state bureaucratic corporatism. It conducted its relationship
with this corporatist setup through what Cardoso (1975) called ‘bureaucratic
rings,’ but they proved to be a contradictory and inadequate device. The state
bureaucracy threatened to expand and to subordinate the bourgeois order to a
resurgent and authoritarian nationalism tied to the expansion of state enter-
prises and dreams of achieving economic and military power by internalising
Department i. From that point on most sectors of capital, which had formed
part of the semi-formal structures of bureaucratic rings, would join civil soci-
ety movements aimed at restoring democratic legality.
For Cardoso and Faletto, democracy could be compatible with dependent
capitalism. They gave several reasons for this. Firstly, it represents a better way
for capital to organise its interests. Secondly, technical progress displaces ac-
cumulation towards relative surplus value, allowing the bourgeois order to
accommodate working-class demands. Thirdly, in the medium to long term
the deepening social inequality resulting from the limits imposed by depen-
dency is offset by the model’s economic dynamism. Social leaders must devel-
op an ethic of responsibility that adapts political action to the economy’s
structural limits and stops it from falling into the trap of adventurism, ex-
pressed mainly in Latin America by guevarismo, which cannot change reality23
(Cardoso 1975, 1995; Cardoso and Faletto 1979a; Cardoso and Serra 1978).
In the 1970s Cardoso and Faletto would come up against the Marxist under-
standing of dependency, which had also been developing since the 1960s based
23 Cardoso and Faletto note in Dependence and Development in Latin America that although
authoritarian-corporative regimes were needed from capital’s standpoint to resolve the
crisis of developmentalist populism, they did create something of a paradox. For whilst
the big industrial-financial corporations guaranteed the State’s central role in the nation-
al economic structure and the overarching system of domination, they failed to create a

on the work of Theotonio Dos Santos, Ruy Mauro Marini and Vânia Bambirra.
In order to assess the different contributions made by dependency theorists
and situate the debate between them, we shall now look at the main theses
associated with the Marxist perspective.
3.2 The Marxist View of Dependency

The Marxist perspective on dependency was paradigmatically developed by
Theotonio Dos Santos, Ruy Mauro Marini, Vânia Bambirra and Orlando Capu-
to. It offers a powerful critique of both Communist Party-style Marxism and
developmentalism. In looking to define dependent capitalism in terms of how
it is specifically articulated through the world economy, it breaks with method-
ological nationalism and aims to reinterpret capitalist development itself,
bringing fresh thinking to value theory. It argues that our understanding of this
development should be rooted not in the core countries’ expansionist trajec-
tory, but in the development of the world economy to which dependent coun-
tries are integral.
Marxist dependency analysis was heavily influenced by Paul Baran and An-
dre Gunder Frank, and in particular by the importance they attach to the inter-
national appropriation of peripheral and underdeveloped countries’ surpluses
via commercial, productive and financial monopolies controlled from the cen-
tral countries.
In his classic work The Political Economy of Underdevelopment (1957), Baran
introduces the concept of ‘economic surplus,’ which he divides into three
types: actual, potential and planned. Actual surplus means any mass of eco-
nomic resources available after consumption; potential surplus refers to the
mass of resources that would be available for investment were unemployment,
underemployment and luxury consumption by capitalists and government
bureaucracies eliminated, and a planned surplus is the kind generated in a so-
cialist society where profit is no longer the basis of social organisation.
political model to go with their structural domination: “The passage from the democratic-
representative regime to the authoritarian-corporative regime […] is achieved through
revolutions in which large national organizations like the army and the public bureau-
cracy (rather than the national or internationalised bourgeoisie) take action and reorga-
nise. Of course, the structural system that makes the action of these groups meaningful is
the same one described herein, and therefore the internationalised bourgeoisies contin-
ue to be the basis of the system of domination” (Cardoso and Faletto 1984, 134).
Cardoso develops this point in Autoritarismo e democratização, where he attributes Bra-
zilian authoritarianism to sectors whose power comes from their particularist use of the
national state. He therefore advocates what is effectively an estado de compromisso virtual
or virtual compromise state consisting of an alliance between the internationalised bour-
geoisie and non-totalitarian sectors of the state apparatus keen to legitimate Brazil’s po-
litical model and halt the country’s slide into fascist and obscurantist totalitarianism and
global isolation. See Cardoso (1975).

220 Chapter 5
Societies divide their resources between those meant for consumption and
those put into savings and investment, which make up the surplus. But for Ba-
ran, surpluses in underdeveloped countries are appropriated by foreign invest-
ments and the whole trade and financial system built around them. Foreign
investments are linked to the creation of an export-focussed production and
services apparatus that is precariously articulated to the internal market. They
represent an initial contribution, which is partly disbursed for the purchase of
local assets – like mineral deposits – but then they are discontinued, and the
assets are maintained through the reinvestment of internally generated prof-
its. The precarious nature of the link to the national economy leads to over-
importation – a trend accentuated by price manipulation involving parent
companies and their subsidiaries. Financial support becomes yet another
cause of decapitalisation. As a result, underdeveloped countries must choose
between subservience to the capitalist world order or a socialist revolution
that makes development possible through the internal control of surpluses.
Andre Gunder Frank (1969, 1980, 2011) develops a systemic conception of a
world divided into metropoli and national, regional and local satellites. An
area is a metropolis or a satellite depending on whether or not it can appropri-
ate globally produced surpluses via international economic relationships that
involve not only trade but also the circulation of capital. Frank’s model works
through a complex system of relationships whereby nations are made up of
internal metropoles that seize the surpluses from their own satellites but can
themselves be subjugated and decapitalised by foreign metropoles.
Such has been the fate of Latin American nations. They were capitalist ever
since they were conquered through colonisation, and the outcome of this pro-
cess of insertion into the world system was the development of underdevelop-
ment. Only through autonomy and socialism can they escape this iron logic
and develop. Illustrating this logic, Frank observes that Latin America has al-
ways developed most when the metropoles influencing them have been hit by
a crisis. Such crises allow it to control more of its surpluses and industrialise,
but this progress is then fully or partly wiped out by the subsequent offensive
of a recomposed metropolitan order. For Frank Latin American development
reached its high point during the crisis of the 1930s and 1940s, before metro-
politan restructuring once again raised the spectre of stagnation.24
Although these ideas did much to advance understanding of the interna-
tional question, Baran and Frank failed to go beyond the perspective devel-
oped by Mariátegui and others when the first shoots of dependency theory
24 “A second hypothesis is that the satellites experience their greatest economic develop-
ment and especially their most classically capitalist industrial development if and when
their ties to their metropolis are weakest […] A corollary of the second hypothesis is that

appeared in the 1920s (Marini 1992, 1994). Contra developmentalism, depen-

dency theory claimed that Latin America’s ruling classes formed part of the
world economy’s division of labour, being internal and external at one and the
same time. This view of the internal-external relationship was hinted at in
Mariátegui and Baran before being developed more comprehensively by Frank.
Mariátegui, for example, identified an internal comprador and big landowner
(latifundista) bourgeoisie articulated with imperialist interests. The subse-
quent weakness of this internal bourgeoisie in the face of imperialism, which
was related to its inability to revolutionise the productive forces, led him to
dismiss the possibility of bourgeois-democratic revolution and in doing so
challenge the theses upheld by the Third International. To that extent he ar-
ticulated the external with the internal. But all three writers lacked a dynamic
view of such relationships, seeing them instead as static. This prevented them
from constructing a theory of dependent capitalism.25
The pioneering contributions of Theotonio Dos Santos and Ruy Mauro
Marini offered a mature analysis of dependency by advancing a theory that
captured the dynamic relations between the external and the internal. The
choice for most Latin American countries was not between development and
socialism on the one hand and stagnation and capitalism on the other, but
between different types of development, each with their own limits and conse-
quences. Dos Santos and Marini differ from the authors discussed by Baran
and Frank in that they associate the power to appropriate surplus value in the
world economy not only with the presence but also with the dynamism of
technological, commercial and financial monopolies. They start from Marx’s
thesis that capitalism is a system founded on competition and surplus-value
accumulation. Monopolies compete with one another, but only win out and
expand the mass of surplus value they appropriate if they exhibit technologi-
cal dynamism. When dependent countries were incorporated onto a lower
rung of the international division of labour on account of their production
specialisation they became the target of this monopolistic competition, which
the manner of their incorporation prevented them from challenging. The sur-
pluses and value they produced were expropriated in different ways and they
when the metropolis recovers from its crisis and reestablishes the trade and investment
ties which fully reincorporate the satellites into the system, or when the metropolis
expands to incorporate previously isolated regions into the world-wide system, the previ-
ous development and industrialization of these regions is choked off or channelled into
directions which are not self-perpetuating and promising.” (Frank 1969, 9–11).
25 Frank, for example, plays down the contradictions between historical capitalism and the
capitalist mode of production, which very much limits the scope of his analysis of depen-
dent capitalism.

222 Chapter 5
adapted to the restructuring needs of the monopolies competing in the world

economy. As Dos Santos argues, they did not adapt to these needs automati-
cally but as a result of the reciprocal influence of external and internal forces.
However, the ‘compromise situation’ established between them ensured the
internal forces would only choose a form of insertion that was compatible with
the options offered to them by external forces led by international capital and
its political-institutional representatives had to offer. But why did the domi-
nant classes in dependent countries opt for such a compromise at all, if it kept
them in an inferior position within the world economy?
In keeping with Marx’s theory of value, the answer given by Marini and Dos
Santos was that the aim of capital and the social forces historically articulated
to it is to make superprofits, or extraordinary surplus value. This is what gives
capital accumulation its dynamism and explains why technical advances are
introduced. Thus the dominant classes in peripheral countries all pursue su-
perprofits, and do so by associating with international capital’s technological,
financial, commercial and institutional bases. This association enables them to
lead the accumulation process and achieve national or regional monopoly
power out of all proportion to that attainable using only internal resources.
The outcome is a concentration of extraordinary surplus value and superprof-
its in dependent countries without equivalent in the central countries.
Marini notes that under capitalism surplus value is produced via the devalu-
ation of essential consumer goods, but that the ability of the individual capi-
talist to successfully appropriate it in the sphere of commodity circulation
depends on labour productivity. The production of surplus value and its ap-
propriation via labour productivity are two distinct realities that do not always
coincide. The dominant classes in dependent countries see foreign technology
as a means of appropriating surplus value independently of its production.
Focussed on the needs of the world economy, they only really develop produc-
tivity in sectors geared towards the international market or towards luxury
consumption components of the internal market. The result of this process is
that
a. Segments of the dependent bourgeoisie that are articulated to interna-
tional capital appropriate a high proportion of internally generated sur-
plus value without increasing the general rate of surplus value.
b. The global economic relationships established by those segments de-
prive the national economy of surplus value by adjusting its values to the
global productivity influencing it. Meanwhile the dependent bourgeois
segment that introduces foreign technology recoups this loss by
establishing extraordinary surplus value and transferring it to society as a
whole. There are however circumstances where the extraordinary surplus

value in question can be partly wiped out, affecting also the sectors which
monopolise the introduction of foreign technology.26
c. Labour super-exploitation becomes a generalised way of regulating la-
bour power in order to maintain the rate of profit.27
Marini’s view of the relationship between surplus value/value appropriation
and productivity makes for a powerful critique of ecla’s theory of unequal
exchange and the deterioration of the terms of trade. He argues that contrary
to cepalista assumptions the tendency under capitalism is for higher produc-
tivity to transfer to prices. This occurs because of the competition that nour-
ishes the system and imposes the general laws of capital on each individual
capital. For Marini, falling prices and deteriorating terms of trade should be
understood in terms of competition. The key element in the process is the mi-
gration of capitals with a higher organic composition towards the export sec-
tors of dependent countries. This migration leads to the devaluation of the
latter’s commodities, which now incorporate a smaller amount of abstract la-
bour per unit, whilst at the same time an increase in the consumption of the
industrial inputs used to produce them – inputs which incorporate an increas-
ing amount of abstract labour. The establishment of extraordinary surplus
value in the export sector also forces a reduction in the commodity prices of
the average capital in the sector with no productivity increase in return. Both
situations lead to a fall in the profit rate and to super-exploitation being used
26 To understand this, it should be noted that extraordinary surplus value can be established
either within a sphere of production or between spheres of production. When established
within a sphere of production, it represents the productivity differential of a group of in-
dividual capitals with above-average productivity. But when established between spheres,
it means that productivity in one sphere is higher than the average across the economy,
benefitting it at the others’ expense via unequal exchange.
If competition intensifies within a sphere and its average productivity rises, eliminat-
ing the aforementioned differential, then the extraordinary surplus value is eliminated
and the capitals which were previously earning superprofits also lose surplus value.
Whereas to eliminate extraordinary surplus value between spheres of production, pro-
ductivity would have to level out across the whole of the economy. As we saw, the social
and economic imbalances caused by the introduction of foreign technology in depen-
dent countries restricts the potential for social mobility and limits competition to the
monopoly segments. Extraordinary surplus value can only be eliminated in these seg-
ments if certain spheres of production become obsolescent, but that would lead to capi-
tal migrating towards the production of other, more dynamic, commodities. However,
crisis situations and restricted demand can still reduce the average rate of surplus value
in a sphere and impact upon the extraordinary surplus value previously obtained, to the
point even of eliminating it.
27 In Chapter 6 we examine more fully the concept of super-exploitation and its place with-
in the Marxist theory of value.

224 Chapter 5
as a means of increasing it. The low wages ecla observed in Latin America and
highlighted as a theoretical problem for development do not stem from under-
industrialisation, but are actively produced by technological dependency.28
Marini notes that another cause of the deterioration in the terms of trade
lies in the power of extraordinary surplus value to act across productive sectors
in the world economy, especially in the centre-periphery relationship. He
points out that the dynamism of technical progress is linked to the luxury
consumer goods-producing sector. This is the only sector that can expand pro-
duction without reducing the price of goods. To do this it uses the savings gen-
erated by replacing labour power with fixed capital and the effect of this on
demand, transferring value from the wage mass to the mass of surplus value.
Such a process affects the price structure and produces deviations that depress
prices in the essential consumer goods sector and raise them in the luxury con-
sumer goods sector. In dependent countries, the power of technological mo-
nopoly puts extraordinary surplus value at the very centre of accumulation
processes, leading to their hypertrophy, resort to super-exploitation in order to
compensate, and the relative decline of the essential consumer goods sector.
In the central countries, intense technological competition limits extraordi-
nary surplus value and lowers prices, tying them to necessary consumption
and the development of relative surplus value. International surplus value ap-
propriation to the benefit of the central countries contributes to this by in-
creasing internal demand and investment potential. Marini however points
out that as a result of the changes globalization has made to the international
division of labour, extraordinary surplus value is now a structural feature of the
central countries too, bringing super-exploitation to their shores.29
For Dos Santos and Marini, dependent capitalism is based on a specific form
of the expansion of productivity and extraordinary surplus value, which leads
to outcomes quite unlike those achieved in the central countries. Although
they draw on Baran and Frank, they also go beyond them and construct their
own distinct theoretical framework. The appropriation of surplus value and
economic surpluses does not hinder the technical progress and industrialisa-
tion of dependent countries, but it does give their development a particular
28 “The truth is that whilst ecla captured the deterioration in the terms of trade correctly
in empirical terms, they interpreted it wrongly. Sooner or later rising productivity and the
lower costs it brings must be transferred to prices, except where there are abnormal situ-
ations in the world market, such as those that give rise to monopoly (configuran monopo-
lio) or derive from wars or natural disasters […] Nonetheless, despite framing it wrongly,
ecla showed remarkable insight in drawing attention to the issue of labour remunera-
tion, as life itself would demonstrate” (Marini 1994b, 141–142).
29 In Chapter 6 we look at the relationship between extraordinary surplus value, relative
surplus value, and the super-exploitation of labour or labour power.
character that rendered it incapable of eliminating or sustainably reducing

poverty. Super-exploitation is a constituent part of this development and pos-
es a constant threat to the income levels of the popular classes that can only be
mitigated by increasing work intensity, working hours, or skill levels.
Dos Santos shows that the foreign exchange deficits created by foreign capi-
tal outflows are both a cause and a consequence of super-exploitation (1968,
1972, 1978a). On the one hand, super-exploitation retards the development of
domestic productive forces and imposes limits on internal market expansion.
This restricts the investment cycle and allows foreign capital to divert its
surpluses towards other productive activities where competition is more in-
tense and markets more dynamic. On the other hand, the foreign exchange
deficits caused by foreign capital outflows trigger a fall in the profit rate and
the need to reduce the prices of labour power to below their value.
For Dos Santos, the postwar tendency in dependent countries towards
balance-of-payments deficits can be explained in terms of the following logico-
historical sequence. Deteriorating terms of trade together with freight and ser-
vice payments restricted foreign currency surpluses, making it impossible to
import the machinery and equipment needed to industrialise. That could only
be achieved by resorting to foreign capital. But foreign capital provides little
real inflow of cash as parent company-subsidiary price manipulation results in
an overestimation of earnings as it prioritises reinvestment over new capital
contributions, transferring profits that surpasses the amount of the cash
inflow. The external debt ends up financing capital flow deficits and creates fi-
nancial dependence, which tends to become autonomous of, and increasingly
conditions, industrial dependence. The result is a secular decline in economic
growth, but not an end to the development of production or dependent capital-
ism’s cycles of expansion.30
Together with Vânia Bambirra, Dos Santos developed the thesis that the ex-
ternal accumulation of capitals is the main factor limiting production in
dependent capitalism. This accumulation is evident from the fact that Depart-
ment i, the producer of capital goods, is largely external to the dependent capi-
talist social formation and is introduced through direct investment, external
30 Dos Santos highlights the cyclical character of foreign investment in the development of
dependent countries. During upturns, the foreign capital entering their internal markets
is a factor of capitalisation, but when the limits on demand imposed by super-exploitation
are reached it creates a deficit in the balance of payments. Foreign debt and inflation be-
come the means to finance the outflows or artificially expand internal demand. But these
devices have their own limitations and lead to serious macroeconomic imbalances that
require super-exploitation to generate trade surpluses in order to restore equilibrium at
another level of dependency. See Dos Santos (1972, 1978a). For a classic analysis from this
perspective of the Latin American balance of payments during the 1950–67 period see
Caputo and Pizarro (1973).
226 Chapter 5
financing or trade surpluses. Dos Santos points out that although i nternational
capital prioritises investment in luxury consumer goods, the more the world
economy’s productive forces are socialised as a function of their own develop-
ment, the more interdependent countries become. This prevents international
capital and its national bases from avoiding the trend towards the internation-
alisation of heavy industry and Department i indefinitely. The process industri-
ally integrates dependent countries to a level where dependency is no longer
materially necessary, but can only be concluded under the leadership of the
working class, both urban and rural.31
The rising organic composition of capital in dependent countries is a topic
examined by Marini. He notes that industrialisation and technical progress
create a contradiction between Latin American countries’ expanding scales of
production and their limited internal markets. State demand and luxury con-
sumption go some way towards compensating for the restrictions on mass
consumption, but not enough to satisfy rising productivity.32 This contradic-
tion underpins what he calls ‘sub-imperialism.’ He uses the term to describe
how dependent countries overcome internal market limitations by increasing
their commodity and capital exports. For Marini, this is not an absolute ten-
dency but a relative one. In other words the internal market continues growing
in a concentrated form, but the dynamic of commodity realisation shifts in-
creasingly towards the international market.
In their analysis of the Latin American political model that grew up along-
side industrial development in dependent capitalism, both authors observe
that a mass self-organised proletariat subjects dependent capitalism to a struc-
tural instability, which heavily influences cycles. Democratic regimes struggle
to meet mass consumption demands, and when growth gives way to crisis that
is the time for popular forces to launch a major offensive. For Dos Santos, this
is when big capital and the sectors united under its leadership respond with
fascism.33 He defines fascism as a regime of terror during the imperialist phase
of big capital, which craves institutionalisation on a permanent basis. Fascist
31 This issue is addressed in Dos Santos (1978d), notably in Part 3, Chapter iv, “La recuper-
ación y la gran crisis.” (Recovery and the big crisis).
32 Although Kaleckian-influenced neo-developmentalist thinking played down the effects
of income concentration on realisation crises, consumption cannot actually be separated
from use value and from individual needs. The way the income mass is distributed very
much conditions commodity realisation.
33 Deepening recessions offer fascism the opportunity to turn themselves from political
movement into institutionalised political regime – unless centre-left and left leaderships
prove themselves capable of resolving the socio-economic crisis by subordinating the an-
archy of the market to planning. See Dos Santos (1978d, 1991).

regimes have both a defensive function of destroying working class organisation

and an offensive one of imperial expansion on behalf of the national fractions
of big capital.34 But these very characteristics make the use of fascism in de-
pendent countries so contradictory. Its nationalist and expansionist nature
conflicts with foreign capital – the most dynamic sector of accumulation. This
contradiction, expressed by the Peruvian armed forces in 1968 with deleterious
consequences for international capital, tended to spread to the Latin Ameri-
can military regimes as Brazil, Argentina and others developed nationalist
ambitions. These factors explain why there was an international offensive in
1973–1974 to dismantle such regimes and move dependent countries and Latin
America particularly in the direction of restricted democracy. This offensive
was influenced by Trilateral Commission and led by the US government, even
though the latter was unable to control the process in the face of popular pres-
sure for far deeper redemocratisation (Dos Santos 1977a).
The alternative to this model of economic and political development is so-
cialism. It falls to socialism to articulate economic development and the eradi-
cation of poverty and misery. Nonetheless these are complex tasks. Socialism
has emerged as an alternative for dependent countries at a time when the
world economy features a profound level of interdependence. It now embod-
ies a dramatic dialectic between the need to tackle the evils of super-
exploitation and its clash with a world-economy driven by historical c apitalism.
If the forces of socialism are to successfully complete their tasks, they must
avoid isolation and seek international support. In this context regional and
continental spaces must be given priority. The spread of socialist revolution
34 Dos Santos distinguishes between a fascist State and a fascist movement. In so doing, he
raises the theoretical and/or historical possibility of either a fascist state that has not been
generated by fascist movements, such as those established by military occupation in Eu-
rope between 1939 and 1945; or, conversely, fascist movements winning elections without
destroying the existing institutional-democratic structure. He notes that the social base
of the fascist State is different to that of the fascist movement. The fascist State is pro-
duced by a fusion of the petty bourgeois movement, decadent sectors of the bourgeoisie,
the lumpen proletariat and the big capitalists. It represents a regime of terror on behalf of
big capital that is expansionist and antiliberal in terms of people’s rights. Its chance to
establish itself comes when big capital is threatened by the prospect of proletarian revo-
lution but the objective and subjective conditions for the proletariat to impose its hege-
mony on society are absent. The fascist regime begins to conflict with the apparent social
base of the fascist movement. Big capital, which willingly helped create the conditions for
fascism to take power, then urges the destruction of the anti-monopolist wing of the
movement and opens up the path to a political and ideological settlement with conserva-
tive sectors who are willing to ally with fascism. See Dos Santos (1978a, 1978d, 1979a: 13–33,
1991).

228 Chapter 5
from the national to the regional level can allow for greater scales of p
roduction
and organisation of collective labour, and the prospect of sustained techno-
logical progress.
3.3 Theories of Dependency: a Balance

Dependency theories are of paradigmatic importance to the analysis of pe-
ripheral and global capitalism. They bring the oneness of the world-economy
back into focus, breaking with the periodisation that was elaborated by devel-
opmentalists who saw underdevelopment as backwardness. They combine de-
velopment and underdevelopment in the time and space of an expanding
world-economy. But despite certain convergences they are also separated by
major differences. To explain these differences better we shall divide them
thematically.
3.3.1. The Role of Foreign Capital in Development

Although the theories of dependency start out by emphasising the decapitalis-
ing effect of foreign capital on peripheral formations, they are prone to revis-
ing this initial position in their analysis. So whilst Cardoso and Faletto affirm
that profit remittances exceed capital inflows, they see in financial dependen-
cy a factor in financing the deficit. For them, dependency is intertwined with
productive capital and internal market dynamism. This allows them to assert
that dependency is closely related to development, which leads them to ques-
tion the very notion of underdevelopment they had adopted.
Cardoso and Faletto advance this proposition for lack of a consistent theory
of cycles. They are ambiguous in the way they approach the crisis of capital
overaccumulation, which they wrongly describe as a crisis of realisation. At
times they claim that the central countries use this crisis to justify capital ex-
ports to the periphery as an ongoing way of financing their capital flow deficits.
But elsewhere they cite internal market dynamism to deny that the periphery
suffers overaccumulation crises. We see this in Cardoso’s fierce attack on Mari-
ni’s concept of sub-imperialism in his article “Imperialismo y dependencia”
(Imperialism and dependency, included in Cardoso 1972), where he refers to
Baran and Sweezy’s rereading of overaccumulation crises of in central coun-
tries simply in order to propose revising the theory of crises in dependent
countries. Throughout both Cardoso and Faletto, dynamism clearly prevails
over crisis in the periphery. The periphery exports a greater mass of value than
it receives from the core, and in so doing it aggravates problems of overaccu-
mulation problems in the latter, which can only respond by reexporting capi-
tals to the periphery and thereby financing peripheral development.

Let us examine their arguments. The following passage draws out the prob-
lem of realisation or overaccumulation:
Furthermore, as the ratio of investment in hot money to investment by

the internationalised sector decreases ever faster thanks to local saving or
international credits (which clearly put a strain on the capacity of depen-
dent economies), so there is simultaneously an increase in the mass of
money returning to the central economies in the form of exported profits
or interest payments and royalties. Those who in the past exported capi-
tal, even when they continue doing so (in the form of financial capital,
private or public loans etc.), began receiving more resources (in the form
of interests, royalties, exported profits etc.) than they exported, thus ag-
gravating the problem of surplus value realisation.
cardoso 1995, 105; italics added
The need to re-export profits is mentioned in another passage:
American companies increased their action in the periphery of the capi-

talist system, as well as in European countries, by means of increased in-
vestments and expansion of their control over local economies. To this
end, they invested funds and used their domestic savings primarily to
purchase assets belonging to nationals. Later, the profits created by the
“foreign sector” of the American economy forced it to expand continually
abroad.
cardoso and faletto 1979a, 181–182; italics added
But they suggest the periphery can escape the problems of the crisis of
realisation:
It is equally necessary to approach the problem of surplus realization

with a fresh perspective. In this connection some authors have consid-
ered the strengthened ties between militarist expansion and the rein-
forcement of military control over society, through a war economy, as the
basic means of capital realization. As a second argument, but a still im-
portant factor, State expenditures in welfare are emphasized as alterna-
tive outlets for capital accumulation.
Though the adequacy of this analysis may be questioned, Marxist au-
thors [Baran and Sweezy – cem] carried out a comprehensive economic
reinterpretation of the mode of functioning of monopoly capitalism, as

230 Chapter 5
the previous examples illustrate. The same is not true, however, when
considering the political aspects of the problem and especially the
politico-economic consequences of monopoly capitalism in dependent
economies.
cardoso 1972, 19335
The question here is this. If Cardoso doubts the adequacy of Baran and Sweezy’s
understanding of internal forms as the basic means of capital realisation, as
globalisation processes have proven him right in doing, then why return to it in
the political and economic reinterpretation of dependent capitalism? His
analysis seems to slide into inconsistency and ideology. It overemphasises the
periphery’s internal dynamism, despite provisos about balance-of-payments
problems, which are apparently overcome by the permanent movement inher-
ent to said dynamism. Cardoso and Faletto decouple the cyclical phases of ex-
pansion and crisis in favour of the former in order to argue that whilst foreign
capital-led development processes decapitalise dependent countries, they also
continually recapitalise them. Developmentalism creeps into the gaps at the
heart of their theoretical problematic. That is why they are only too happy to
counter the notion of underdevelopment with that of dependency and develop-
ment, and to decry the former despite using it as an analytical tool in their cri-
tique of modernisation theories.36
Viewing the cycle as a whole allows us to see clearly the decapitalisation
that takes place when foreign capital leads the accumulation process in depen-
dent countries. Figures 5.1 and 5.2 illustrate the decapitalising effect of foreign
capital on dependent countries. Decapitalisation is cyclical, taking effect when
capital outflows during the recessive period overcompensate inflows during
35 Translation reproduced from Cardoso (2015b, 119).

36 Cardoso subtly affirms that dynamism outweighs balance-of-payments problems in this
passage: “The immediate consequences of verifying this [the existence of foreign invest-
ment in the consumer durables sector] are, in summary, that dynamism does exist in the
form of capitalist expansion, which I called “associated-dependent development”; but
that it is partial and reestablishes both balance-of-payments problems and also the inter-
national asymmetry that stems from the development of the productive forces, differen-
tial rates of profit and wage inequality between the centre and the periphery. Theories of
‘development of underdevelopment’ or ‘stagnationist super-exploitation’ therefore can-
not hold” (Cardoso 1995, 67).
If dynamism marks a return of balance-of-payments problems in the form of foreign
exchange losses and decapitalisation and yet leads to neither stagnation nor super-
exploitation, then presumably it resolves them by itself, as otherwise economic develop-
ment would be interrupted.

2500
2132
2000
1347
1500
1000
500
0
Remittances Incoming
Figure 5.1 Remittances of profits, interest and non-factor services vs. incoming foreign
capital in Latin America – 1956–2009 (in usd billions)
Source: CEM, BASED ON cepal (1985, 1992 and 2010). Excludes non-
factor service travel
1200 1131.5
1000
800
600 522.5 R I
498.3
381.8 420
400
226.5
200 171.4
85.3
9.3 6.8 18 6.8
0
1956–1960 1961–1967 1968–1981 1982–1990 1991–1998 1999–2009
Figure 5.2 Remittances of profits, interest and non-factor services versus incoming foreign
capital in Latin America
Source: CEM, BASED ON cepal (1985, 1992 and 2010). Excludes non-
factor service travel
expansion.37 The continuous nature of the development cycle derives not

from its dynamism, but from the huge trade surpluses obtained through
37 From 1956 to 1960 foreign capital inflows expanded. This is not apparent from Figures 5.2
and 5.6 as they show outflows outstripping inflows. That, however, was due to the still
relatively low flows of industrial or financial forms of capital in that period compared to
commercial forms. If we consider the net difference in payments for freight and other
services in 1956–1960 and 1950–1955, rather than their absolute value in 1956–1960, we find

232 Chapter 5
s uper-exploitation, which make it possible to finance the balance-of-payments

disequilibria created by foreign capital. The Marxist theory of dependency
offers a superior understanding of dependent capitalism because it empha-
sises the cycle in all its phases and at both the national and international level.
This brings us to another divergence between the different perspectives on
dependency – one related to peripheral patterns of capitalist development.
3.3.2. Dependent Patterns of Development

We saw that for Cardoso and Faletto dependent capitalism does not reproduce
the patterns of central capitalism. It fails to fully internalise Department i of
the economy; industrialisation is foreign capital-led and centred on durable
consumer goods; it is subject to balance-of-payments difficulties, and it exac-
erbates social stratification. But it is based on relative surplus value and
productivity, and can expand indefinitely for as long as the socio-political
structures of domination allow it without the economy deepening its contra-
dictions for development. The financial and productive dimensions of depen-
dency become interwoven and any limits to the expansion of dependent capi-
talism are strictly political.
There are however theoretical and empirical problems with this approach.
The authors provide no analytical basis for automatically linking productivity
to relative surplus value. Dependent capitalism has continued to register high
levels of poverty and inequality over the course of its development, and growth
has failed to match that of the 1950s and 1970s. The balance of payments has
placed mounting obstacles in its way because its earlier expansion led to deep-
er financial dependency. And although China has become a powerful presence
on the 21st century world market, the effect of Chinese economic growth on
this scenario has been contradictory, partly modifying it but without affecting
it structurally. We shall return to this topic further on.
Theotonio Dos Santos and Ruy Mauro Marini both in their own way see
dependent capitalism as founded on labour super-exploitation. They argue
that dependent capitalism does bring productive and technological develop-
ment but is beset by contradictions. Balance-of-payments problems recur on a
cyclical basis. When the economy is expanding, incoming foreign capitals cre-
ate a surplus in capital flows that reverses more than proportionally during
crises. These crises break out because of the limits on internal and external
market expansion. During British hegemony, they were determined by the in-
ternational market. The export-based expansion of the dependent economies
that foreign capital inflows were higher than outflows in the latter period, coming to
US$6.8 billion as opposed to US$5.4 billion in outflows. Inflows amounted to 126% of
outflows, a was one of expanding similar figure to other expansive periods. In later peri-
ods flows of the industrial and financial forms of capital increased, and so cyclical move-
ments are more visible.
f ollowed one step behind the expanding or contracting movements of the cen-
tral economies. The internal market subsequently developed and e xpanded
with industrialisation, but not enough to absorb rising productivity. As a result,
industry has ended up focussing on luxury goods production in order to meet
a highly concentrated demand. The internal market has become the chief de-
terminant of cyclical expansion. Meanwhile crisis sends realisation back
abroad to find new markets, and national and international markets combine
to determine the phases of the cycle.
Because of factor and non-factor service deficits and the negative capital
flows they cause in the medium run, economic growth relies on large trade
surpluses. These deficits are made a lot bigger by the sharp rise in foreign capi-
tal inflows produced by industrialisation. External debt is used to extend
expansive cyclical phases, but this creates a financial dependency that increas-
ingly conditions technological dependency and further exacerbates the need
to obtain trade surpluses. Once financing comes up against its limits in the
form of debtor insolvency, super-exploitation must be promoted as the way to
generate surpluses large enough to equalise the balance of payments. But these
are bogus trade surpluses founded on cheaper labour power or a devalued cur-
rency. The balance of payments is equalised but at a higher level of indebted-
ness. The result is a secular and relative tendency towards stagnation on the
part of dependent capitalism. This is manifested by lower economic growth
rates, rising foreign debt and a decline in the quality of foreign capital, which
keeps arriving because of its increasingly financial nature. Figure 5.3 illustrates
this declining quality of foreign capital.38
60
50
40
30
20
10
0
1955–60 1961–67 1968–1981 1982–1990
Figure 5.3 Direct investment as a percentage of foreign capital (flows) in Latin America
Source: cepal (1985, 1992, 2002)
38 Since the 1990s direct investment has risen as a proportion of foreign capital flows. How-
ever, it often does not represent new machinery or equipment but rather debt conver-
sions or mergers and acquisitions that serve to denationalise the Latin American econo-
my. Because we lack Latin America-wide data for this denationalisation process, we have
extended the series shown in Figure 5.3 to the end of the 1980s. We return to this issue in
Chapter 7.
234 Chapter 5
The secular trend towards stagnation does not of course preclude growth
altogether.39 It just means that as financial imbalances deepen, temporary sta-
bilisation at a higher level requires ever-greater efforts to boost economic
growth by shifting accumulation onto the rate of profit. Such efforts and the
difficulties they involve represent a spiralling social cost and a structural deep-
ening of dependent capitalism’s crisis of legitimacy, and usually result in weak-
er periods of expansion. Relative and growing economic limitations fuel social
and political tensions and create an opportunity to break with this model of
development.
The economic limitations in question can be viewed from the standpoint of
the productive forces. Dos Santos notes that dependency only makes historical
sense from the standpoint of the organisation of the productive forces when
there is external capital accumulation. If the economy lacks a fully developed
Department i then it needs foreign capital inflows to ensure expanded repro-
duction. In this context imperialism plays an integrating role in spite of the
huge inequalities it produces. But world-economic expansion takes the logic of
integration a step further and spreads Department i to dependent econo-
mies. This does away with the need for dependency, which having lost its
economic base must rely on political support alone (1968, 1978a, 1978b). This
was Dos Santos’ intuitive masterstroke, which he formulated in the late 1960s.
But ultimately Department i was internalised not by being physical integrated
into the dependent economy – although we cannot altogether disregard that –
but associated with a major national system of innovation that established
physical integration into the world economy as an input to develop internal
capacity.40
The internalisation of Department i implies a level of integration of the pro-
ductive forces that makes scientific and technological interdependence in the
world economy possible. This is clear from tendencies in the diffusion of in-
novation, which reflect how much the world economy has managed to i ntegrate
39 Dos Santos suggests that the idea of a secular tendency towards stagnation is comparable
to that of the tendency for the rate of profit to fall. Marx highights the latter tendency’s
secular nature and claims that whilst there is a point at which it becomes irreversible, its
secularity allows for countertendencies that imply a sharp rise in profit rates.
40 This formed the basis of Marxist dependency theory’s critique of ecla’s import-
substituting industrialisation project, which understood the incorporation of industrial
technology as an external matter that foreign trade would resolve. This only created an-
other, technologically more intensive level of dependency. Peripheral countries cannot
break with dependency by industrialising per se but by internalising the drivers of tech-
nological innovation, which are intangible and demand upskilling and scientific and cul-
tural development. This is why in the early 1970s Dos Santos was already concerned with
the scientific revolution.

the productive forces. But international capital resists lending any support to
this internalisation and even tries to prevent it. The integration of national
markets into the international market alters dependent country patterns of ac-
cumulation and destroys part of the industrial and capital goods sector geared
towards their internal markets. Dependent countries suffer because of the
competition they face from core country commodity exports. On a very limited
scale, the foundations are laid of an international division of labour that artic-
ulates dependent countries’ participation in the production of machinery and
equipment parts and microelectronic components. And when this process
happens it faces macroeconomic constraints that delink its internalisation
from the construction of a techno-scientific infrastructure that might syner-
gise with said material base in order to develop it. One example of this is Mex-
ico. It overhauled its trade model in order to incorporate electro-electronic
components, vehicles and vehicle parts and components into its export offer,
but it has no control over the underlying science and technology. This
‘secondary-exporting’ model (Valenzuela 1990) is closely linked to maquila-led
industrialisation, and represents what Marini called ‘economic annexation.’ In
this model, an industrial sector is created which is characterised by its lack of
links to the internal market, high import/export volumes, and reliance on su-
per-exploitation for competitivity. The result is a manufacturing sector that
can add very little value and which despite growing can neither compensate
for the destruction of internal market-facing industrial segments, nor increase
secondary sector participation in the overall economy, nor improve the Mexi-
can economy’s terms of trade. Mexico’s macroeconomic performance remains
poor and subject to powerful cyclical swings because it has adopted a neolib-
eral approach, and that means an intensive export model.
Both in countries that have risen from peripheral to semi-peripheral status
(South Korea and Taiwan) and those clearly heading in that direction (China),
the national state played the lead role in laying down the internal foundations
of productivity. They focussed their efforts not just on internalising the indus-
trial sector – essential as that was to building national or regional systems of
innovation – but on developing a skilled workforce. This brings us to one final
point of comparison between the two perspectives on dependency.
3.3.3. Alternatives to Dependency

We saw that Fernando Henrique Cardoso and Enzo Faletto opted for a negoti-
ated dependency. In their view, politics should take into consideration the
limits that being linked to the international market imposes. This linkage de-
termines not only the structural frameworks but also the dynamism of depen-
dent societies, and political action should be guided by these two factors.

236 Chapter 5
Where there is the deepest inequality there should be the most growth, and
the political model should guarantee the democratic freedoms that allow dif-
ferent social groups to negotiate the distribution of the fruits of technical
progress.
This perspective goes some way towards explaining Cardoso’s approxima-
tion to neoliberalism during the 1990s, when, following the collapse of a devel-
opmental model that had combined globalised production processes with
protectionism, the hegemonic centre used the Washington Consensus to pro-
mote the neoliberal model across Latin America. This meant countries in the
region had to accept the new structural frameworks originating in the domi-
nant centres in order to insert themselves within them as best they could.
Adopting this approach, in 1994 Lidia Goldenstein wrote Repensando a de-
pendência (Rethinking dependency) in defence of opening Brazil up to the in-
ternational circulation of capital and commodities.
Analysing globalisation, Cardoso (1998) revises his previous emphasis on
negotiated dependency. He points out that globalisation universalised depen-
dency, which is no longer about the relationship between some states and oth-
ers but between states as a whole and global financial capital. National policies
become hostage to their own demands because this kind of capital, whilst emi-
nently speculative, affects the real economy through international financing
and new technological scales. In isolation, governments have no choice but to
accept this new dependency until they agree to forge a new institutional order,
which regulates global financial capital via international regimes.
The autonomy of peripheral states is reduced to a minimum in this context.
Rendered all but politically irrelevant by their inherited dependency, they have
no option but to accept international finance overseeing their economies and
support efforts to build international regimes under the leadership of the cen-
tral countries. Denationalisation becomes the price to pay for development.41
Dos Santos, Marini and other Marxist dependency theorists proposed build-
ing socialist economies, or ones that would aid the transition to socialism, as
41 “In every country, exchange rate rules, interest rate rules, and all measures of economic
performance become linked to the movements of this speculative market. And that has to
happen, because that market, which would be unimportant if it did not affect the real
economy, really does affect it […]. On the edges, what is happening as a consequence of
this globalisation, is that you have lost your authority […]. There is no national solution to
the matter. As I have always said: globalisation is not a value, it is not something you want.
It exists. And it needs controlling, because it is going down a dangerous path […] the cri-
tique of globalisation must be all-encompassing. And it’s a critique I put forward when-
ever I can.” (Cardoso 1998, 85–87).

an alternative to dependent capitalism. Socialism of this kind would eradicate

poverty and adopt a regional approach to development. Even though such a
model would enter into conflict with the conditioning international circum-
stances determined by the big monopolies and the hegemonic state, and so
miss out on some of the global technology flowing towards the periphery, it
would achieve levels of social development unmatched by peripheral capital-
ism. A regional approach should be supported as a means of spreading na-
tional revolutions and minimising international conflict. Such an approach
would guarantee access to technology and the population density required to
develop it and promote the social model in question.
An analysis of the results achieved by capitalism and socialism in Latin
America and peripheral countries shows that although dependent capitalism’s
per capita growth rates outstripped those of the socialist countries until the
end of the 1970s, it failed to seriously reduce poverty or come close to the levels
reflected by social indicators in socialist countries. Cuba, for example, is an is-
land of 10 million inhabitants that is politically isolated from Latin America as
a whole and subject to a US trade embargo. And yet we find that its health and
education levels are unmatched in the region, maintaining themselves even
after the fall of the Soviet Union. At the same time however, socialist Cuba has
failed to find a path to economic growth. Its per capita income stagnated in the
1930s and did not rise after the Revolution.42
The experience of the 1950s, 1960s and 1970s shows that the socialist model
is legitimised by the degree of social development it achieves. At the same
time, it lacked the economic dynamism associated with the capitalist world-
economy. But if that was the case while US hegemony was in its expansive
phase, when the deepening crisis of US hegemony in the 1980s stood the rela-
tionship between social and economic development on its head. The capitalist
world-economy entered a trajectory of structural crisis, which it will probably
never leave, adjustments to long term cyclical oscillations notwithstanding.
Neoliberalism became the hegemonic ideology, and peripheral countries that
adopted its structural frameworks became vulnerable to serious macroeco-
nomic imbalances. As a result they have suffered from low rates of growth and
a crisis of legitimacy. In contrast China used the hybrid formula of ‘market so-
cialism’ to pursue alternative patterns of development and international inser-
tion. This has produced excellent results, as it has remained committed to
42 In Cuba, per capita income in 1950 stood at US$3,390 following stagnation and crisis in
the 1930s and 1940s. Its highest level in the post-revolutionary period was US$3,203 in
1985. (Maddison 1995, 289).

238 Chapter 5
s ocial development, its own unconvertible currency43 and control over capital
accounts, but used the advantageous quality/price ratio of its labour power to
attract foreign capital and thereby access the technological frontier. China has
taken advantage of capital’s impasses to restructure the international division
of labour from the centres of the world economy, and under the dynamic of
the techno-scientific revolution it is projecting itself towards its organic core
despite starting from peripheral per capita income levels. In doing so it has
included its population in the development process, raising their consumption
levels and impacting global trade, in particular the price ratio between primary
and manufactured products.
Latin America is at a critical juncture. This is due to the secular tendency
towards stagnation, which crystallises into high levels of financial dependency,
and the region’s exposure to neoliberalism, which tends to combine capital
flow deficits with trade deficits. This pattern was established with the appre-
ciation of the exchange rate and has not been altered structurally by fluctuat-
ing rates. It is much more than a form of crisis management. During expansion,
incoming capitals increase the value of the currency. As a result the trade sur-
plus shrinks and tends towards deficit, which must then be financed by fresh
inflows of capital. When crisis breaks out, capital outflows start to predomi-
nate and the currency depreciates. This generates trade surpluses, but also a
rise in external borrowing and factor services in the current account which are
payable in dollars. As capital movements are more dynamic than international
trade, the exchange rate alone cannot produce the surpluses needed to finance
capital flow deficits, and so super-exploitation must be intensified. A return to
expansion and capital inflows means appreciating the currency and places a
question mark around the trade surplus and the sustainability of economic
growth.
As a result, the choice facing Latin America appears to be the opposite of
the one confronting it during the heyday of US hegemony. As we saw, social
development back then was divorced from economic development and the
two represented distinct alternatives. In the current context the choice seems
to be between socio-economic development guided by socialism, or the social,
economic and political decline produced by dependent capitalism. We return
43 Ever since 2005 China has been appreciating the yuan in order to reduce exposure to the
US market and divert production towards the internal market. En 2016, the imf admitted
the yuan into its Special Drawing Rights (sdr) basket of reserve currencies, which in-
creased its market convertibility and broadened its margins of fluctuation. However the
Chinese state closely controls these fluctuations under a banding system backed by the
huge national reserves it has built up through trade surpluses and its success in narrowing
the technological gap between it and the central countries.

to this question in the last section of this chapter, when we discuss the contri-
bution made by world system theory.
At the same time, we should recognise that the influence of an ascendant
China on international trade has mitigated the negative effects of neoliberal-
ism on Latin American expansion and softened the impact of foreign capital
outflows between 1999 and 2009. China has raised the level of international
competition in the high technology sector, cheapening manufactured prod-
ucts, and has increased demand for basic products and strategic raw materials,
thus raising their prices. This opens a window of opportunity for peripheral
countries to develop in so far as it improves their terms of trade with centre
countries and acts as a counter-cyclical factor sustaining trade surpluses in the
region. Nonetheless, this window is temporary and carries risks of its own. Ris-
ing primary product prices provide local bourgeoisies with a source of extraor-
dinary profit, and could lead to national economies being reprimarised and
social contradictions subsequently deepening should they control the State
politically. During the boom the rising cost of basic products will affect neces-
sary consumer items. That could erode workers’ wages, unless they rise as a
result of the reversal in trade terms pushing up primary product prices. But the
latter scenario is unlikely to be sustainable, for the following reasons:
(a) Rising incomes will probably lead to a relative decline in the Chinese
population’s consumption of basic goods. In addition, technological de-
velopment tends to relatively reduce consumption of industrial raw ma-
terials and energy input per unit of gdp. Thus between 1980 and 2006
China’s gdp increased by 9.8% p.a. and its energy consumption by 5.6%
p.a. A 20% drop in energy consumption per unit of gdp was predicted for
2005–2010. The likelihood of a slowdown in Chinese gdp growth over the
next 10–40 years further reinforces this tendency.
(b) China is unlikely to give up self-sufficiency in food and energy given the
risk to its internal social and political stability should it cede control over
their supply to the international market. Although it has lost arable land
as a result of urbanisation, China has made great strides in using science
and technology to raise agricultural productivity and save energy. Food
self-sufficiency is a typical feature of continental-sized countries or re-
gions in the organic core (the United States and the European Union)
and is integral to the Chinese longue durée. At the turn of the new cen-
tury China was 95% self-sufficient in food, with the figure dropping be-
low 90% by the end of the 2010s due to increased soya imports.
(c) China could use a variety of strategies to reduce the international prices
of primary products such as strategic minerals. In particular, it could de-
velop new materials to replace them; raise its currently low level of global

240 Chapter 5
productive investments by diversifying its supply base, and use the stra-
tegic power of the Chinese state – a major source of global demand from
extremely dependent countries – to lower the world market price of pri-
mary products.
The rise of China throws up both opportunities and challenges. If it is articu-
lated through a system of world power associated with the reproduction of
oligarchical wealth, abandoning the accumulation-without-dispossession
model, then some peripheral nations might drop down the international hier-
archy in compensation for the increase in population at the system’s centre
and organic core.44 But that is just one possible outcome once the periphery’s
window of opportunity disappears between 2015–2020 and 2050, and is far
from being the most likely or sustainable. At the same time, building a multi-
polar, democratic and cooperative post-oligarchical world system over the
next forty years represents a huge challenge for humanity, and the paths ahead
remain ill-defined, even if we can make out their outline.
4 Endogenism, Neo-developmentalism and Neoliberalism
Dependency theory proved to be very influential in Latin America. Numerous

scholars used its perspectives to provide rich analyses of Latin American de-
velopment, notably Florestan Fernandes. Despite his institutional and person-
al ties to Fernando Henrique Cardoso, Fernandes was much closer to the
Marxist version of dependency.45 He developed his own vision of dependent
development, which combines the concepts of social strata and social class.
For Fernandes, the specificity of dependent capitalism lies in the colonial roots
that led dominant oligarchies to resist building a competitive social order. Al-
though the restructuring of central capitalism forced them to embrace the
capitalist market, they did so in their own way by carrying out a bourgeois
revolution that confined competition to the economic sphere and perpetuated
social, cultural and political underdevelopment, thus allowing patrimonialism
and mandonismo to survive in new guises. This underdevelopment has its
roots in the preservation of archaic sectors present in the national and regional
44 Arrighi notes how in the late 1990s the Chinese government lost control over eams and
their hitherto State-regulated forms of property and resource allocation. This made it pos-
sible to change their local and socialising nature. The growth in Chinese foreign direct
investment since the late 2000s has made this easier still. See Arrighi ( 2008).
45 Octávio Ianni, seen by many as Florestan Fernandes’ leading disciple, freely used the con-
cepts of dependency and labour super-exploitation in writings published between 1970
and 1980 such as Sociologia da sociologia latino-americana (1976) and Ditadura do grande
capital (1981).

economy; factors limiting the spread of wage labour such as marginalisation,

and subproletarianisation, and super-exploitation. The latter stems from the
associated pattern, inherent to dependent capitalism, whereby local bourgeoi-
sies compensate for the imperialist extraction of surpluses from the local econ-
omy by over-appropriating the values produced by their workers.
In the long term, however, limiting the bourgeois revolution to the econom-
ic sphere weakens the dependent bourgeoisie. In his 1968 work Sociedade de
classes e subdesenvolvimento, Fernandes still imagined the dependent bour-
geoisie might turn against dependent capitalism in the name of capitalism
(Fernandes 1981c, 101). But he abandoned that illusion when he saw how the
1964 coup in Brazil consolidated a process of bourgeois composition which
internalised international capital nationally and saw the dependent bourgeoi-
sie combine with local stratum to form a national bourgeoisie. As he observed
in 1974’s Revolução burguesa no Brasil,
Under the conditions in which it is taking place, the transition to

monopoly capitalism cannot support self-determined capitalist develop-
ment. It subjects everything – the internal market; the vast and expand-
ing system of capitalist production; the global trade in raw materials and
utilities extracted or produced in Brazil, and a proportion of the inter-
nally generated economic surplus – to the dynamism and control of the
central capitalist economies and world capitalist market. Therefore what
is perceived as the “moment of foreign domination” cannot be eliminat-
ed or attenuated in the (near or distant) future.
fernandes 1981a, 273
In the late 1970s, however, the influence of dependency theory began to wane
considerably. The crisis of the socialist movement, culminating in the coup in
Chile, produced the socio-political context in which dependency theory would
itself enter into crisis. Its socialist version no longer offered alternative solu-
tions to the region’s needs and the compromise of negotiated dependency
proved unable to satisfy the thirst for development among the middle seg-
ments typical of Latin American academia. And so once again analysts looked
within nations to locate the barriers and gateways to development.
This path was first trodden by endogenism, a tendency best articulated by
Agustín Cueva, Francisco Weffort and Ciro Flamarion Cardoso.46 Endogenism
46 Leading examples of the endogenist approach include Weffort’s Notas sobre a teoria da
dependência: teoria de classe ou ideologia nacional (1971), Cueva’s Problemas y perspectivas
de la teoría de la dependencia (1974) and Cardoso and Brigñoli’s História econômica da
América Latina (1979).

242 Chapter 5
launched a direct assault on dependency theory, accusing it both of contami-

nating class analysis with the concept of nationhood, which it claimed could
not be treated at the same level of abstraction; and of overemphasising exter-
nal determinations at the expense of internal factors and class struggle. It lo-
cated the specificity of Latin America and its sui generis form of capitalism
compared to central countries in what it called articulated modes of produc-
tion. This concept starts from the idea that a social formation contains differ-
ent modes of production that combine to form a social totality and lend it a
certain uniqueness. Much historiographical thought in the region started to
adopt this perspective, and following the 1974 Latin American Congress of So-
ciology in Costa Rica it began to take a much clearer form.
The endogenist critique remained on a philosophical plane and was of little
practical consequence. But in methodological terms it marked a huge step
backwards. Endogenism ignored Latin America’s articulation with the world
economy and reasserted the dichotomy between the modern and the archaic
but understood it quite differently. It treated the concepts of class and modes
of production in a dogmatic, mechanical and undialectic fashion, forgetting
Marx’s observation in the Theses on Feuerbach47 that scholastic questions
should be resolved through practice. The fact that class and nation represent
different levels of analysis does not mean they do not condition or influence
each other, because they are part and parcel of the same reality. On the other
hand, by claiming that dependency theory ignored the internal and class con-
flict, the endogenists revealed just how superficial their reading of it was and
how little they understood its main propositions.
Endogenism paved the way for isolating the internal from the external, and
so helped create the conditions for neo-developmentalism. The latter ap-
proach would reengage with the issue of industrialisation and articulate it with
the democratisation of the State, which it saw initially as a precondition for
meeting social demands and later as a precondition for the very success of in-
dustrialisation. Key neo-developmentalist texts include Maria da Conceição
Tavares (1978, 1998), João Manuel Cardoso de Mello (1990), José Luis Fiori
(2003) and Antônio Barros de Castro (1985).
In two works heavily influenced by Kalecky, Acumulação de capital e indus-
trialização no Brasil (Capital accumulation and industrialisation in Brazil) and
Ciclo e crise: o movimento recente da industrialização brasileira (Cycle and cri-
sis: The recent movement in the Brazilian economy), Tavares argues that once
the Brazilian economic cycle got beyond the restricted industrialisation phase
47 Karl Marx, “Theses on Feuerbach” (1845), in Marx and Engels (1989, 121).

of the 1950s, it adopted an endogenous dynamic determined by investment in

the capital goods sector and the ability to anticipate demand (Tavares 1974,
1978).48 The balance of payments is no obstacle to growth because deficits will
always be financed externally whilst investment remains an attractive proposi-
tion. Cyclical interruptions occur because of the disproportions created by
heavy industrial development in an underdeveloped country. Demands from
the capital goods sector is predominantly inter-industrial, but its relatively
small size narrows its markets. Such problems should be tackled through coun-
tercyclical interventions by the State to maintain market dynamism and
growth. But that growth might be accompanied by worsening income distribu-
tion, as it would no longer depend on individual consumption.
In 1978, on the eve of the foreign debt crisis, Tavares described the risks in-
herent to external indebtedness in these terms:
On the other hand, the deteriorating current account balance of pay-

ments did nothing to halt the inflow of risk capital and supplier credits,
thus allowing official indebtedness to rise so that projects of joint interest
to the State and big international capital could continue to be executed
[…] This demonstrates once again the inconsistency of the theory of ‘ex-
ternal limits’ to growth. Growth becomes problematic, chiefly because
the ‘internal crisis’ deepens due to mounting difficulty in reconciling the
contradictory interests of major sectors when the national economy’s ex-
pansionary tendencies are reversed.
tavares 1998, 118
Jorge Castañeda would take neo-developmentalism to an extreme when he ar-

gued that Latin American countries were imperialist (Castañeda and Hett
1978). He arrived at this position by ‘freely’ interpreting Leninist thought and
claiming that imperialism was defined not by the export of capital but by the
formation of finance capital out of the fusion of industrial and banking
capital.
The debt crisis of the 1980s sounded a note of caution, although Antônio
Barros de Castro and others still insisted that the national economy was strong
enough to deal with external restrictions. De Castro (1985) argued that the Sec-
ond National Development Plan’s programme of debt-financed import substi-
tution marked a definitive break with underdevelopment and had made the
48 This is the approach defended by João Manuel Cardoso de Mello in the Tavares-influenced
O capitalismo tardio (1990), originally presented as a doctoral thesis to Unicamp in 1975.

244 Chapter 5
Brazilian economy so autonomous that it could import less and generate trade
surpluses which could be used to service the external debt.
Given the history, there is no need for us to dwell on these formulations.
With the crisis of the 1980s, neo-developmentalist pessimism towards income
distribution extended to the success of industrialisation itself. Where previ-
ously it claimed that democratic control of the State was needed to steer indus-
trialisation towards the production of mass consumer goods, it now argued
that the very process of industrialisation must come under State control in
order to establish an organised form of capitalism.
This thesis is defended most notably by José Luis Fiori (2003), whose many
writings from the 1990s are distilled in his 1994 doctoral thesis, O voo da coruja
(The flight of the owl). Focussing on Brazil, Fiori argues that its development
problems stem from a financial sector that is not sufficiently centralised to fi-
nance the development of local industrial capitalism. As a result it is finan-
cially dependent and shackled by external constraints because of its failure to
develop a model geared towards financing national development. To explain
that failure Fiori points to an oligarchic pact. Although the terms of this pact
were redefined after 1930, it still exerts a controlling influence over the state
and prevents the concentration of property and savings that results from com-
petition destroying and centralising capital and always precedes financial cen-
tralisation. In this view, our underdevelopment is caused by the preservation
of patrimonial traditions.
The question remains, however: what was the secret behind the power of
this oligarchical pact? Fiori (2001, 2003) and Tavares (1999, 2001) point to the
enlargement of national territory, which pushes back the agricultural frontier,
and to the ideological use of economic growth. These two factors alleviate so-
cial tensions and allow the country to forge ahead regardless.
Yet other Latin American countries such as Chile and Argentina lack an ex-
tensive agricultural frontier and suffer the same financial dependency. Accel-
erated economic growth exhausted itself in the 1980s and under Cardoso the
Brazilian state centralised financial resources to an unprecedented extent by
raising state revenues. But not even that tore the pact asunder. Fiori and Tava-
res’ explanation would therefore appear to be insufficient. In our view, the
reason for financial dependency lies in the ‘superprofits pact’ between local
entrepreneurs and foreign capital. The former have no intention of pursuing
financial centralisation independently. The neo-developmentalist search for a
non-existent national bourgeoisie only leads to the thinly-disguised pessimism
displayed by Fiori, who spends far more time highlighting the inadequacies of
the neoliberal model than setting out alternative ways forward.
The crisis of the 1980s engulfed neo-developmentalism too. In Brazil its
leading representatives contributed decisively to this through their disastrous

handling of economic policy whilst implementing the so-called Cruzado Plan.

Underestimating just how much the balance of payments would stunt eco-
nomic growth, they plunged the country into bankruptcy and a technical
moratorium.
Neoliberalism became hegemonic in the 1990s by exploiting the crisis of
neo-developmentalism. Unable to challenge dependency-imposed limits dur-
ing the cyclical swing towards recession, neo-developmentalism was incapable
of formulating a developmental project for the region and so created an open-
ing for the neoliberal offensive launched from the major centres. The neolib-
eral approach went on to exert a huge influence in the region. Even eclac
would surrender to its themes and categories – in stark contrast to the 1950s
when even neoliberals like Campos made concessions to the language and
content of structuralism.49
In the 1990s the Washington Consensus really asserted itself, setting out to
dismantle import-substitution policies and putting the competitive principle
at the core of its restructuring programme. The Consensus revolved around ten
policy proposals, most notably the elimination of fiscal deficits, economic de-
regulation, privatisation and currency appreciation. In Brazil, Gustavo Franco
(1999) and Lídia Goldenstein (1994) have been among the most fervent defend-
ers of neoliberalism.
Franco argues that only trade and finance liberalisation, articulated through
an exchange rate anchor, can get Brazil and Latin America back on the path to
development. He vigorously attacks import substitution, blaming it for the re-
gion’s stagnation. Liberalisation eliminates protection, which favours a rentier
existence, and makes competitiveness a core objective of national enterprises.
The new systemic conditions in the region will attract foreign investment,
which will bring with it new technologies and so raise productivity. This is the
key to sustaining the currency appreciation that had triggered the whole pro-
cess. In his view, the regional macroeconomy needs to move from the balanced
current account of the 1980s to structural deficits financed by a continuous
inflow of external savings in the form of direct investment.
According to Franco, currency appreciation, current account deficits, exter-
nal savings and productivity could become part of a virtuous circle and slowly
49 An example of this shift in eclac’s thinking is its proposal for an open form of regional
integration, which sees financial, technological and commercial integration into the
world market as the key to boosting competitiveness and reducing local monopoly para-
sitism. Limits should be put on customs duties, and the State should intervene less in the
economy and focus on promoting investment in education and infrastructure along with
productive transformation, technological innovation and social equity. See cepal (1990b)
and “El regionalismo abierto en América Latina y el Caribe. La integración económica al
servicio de la transformación productiva con equidad” in cepal (1998b, 903–924).

246 Chapter 5
produce a convergence with international productivity rates. At the same time,

however, he advocates putting limits on the current account deficit, which
could endanger the developmental trajectory. Without further explanation, he
argues that inflows of external savings should be permanently capped at 3% of
gdp:
In a situation of current account equilibrium such as we had until 1994,

capital inflows just produce an accumulation of reserves which, if
sterilised, cancels out any effect on aggregate savings and growth. For
that reason alone the country should settle for maintaining deficits in the
current account and apply controls and restrictions to incoming foreign
capital, especially that of a financial and short term kind. But foreign sav-
ings should not contribute more than 3% of annual gdp, otherwise they
will increase external account fragility.
franco 1999, 62
Goldenstein takes a similar line in her writings. She argues for the deregulation
of capital and commodity flows, privatisation and monetary stabilisation in
order to thus boost external capital flows, especially of the productive kind:
The whole process depends on maintaining an open economy in order to

control inflation and capital flight. Maintaining an open economy de-
mands, in turn, the existence of a ‘strong currency’ to guarantee imports
and prevent speculative attacks against its still fragile currency. There are
two ways to achieve a strong currency: by attracting speculative capital
through high interest rates or by attracting productive capital. The first
way – attracting speculative capital – is dangerous, costly and only viable
in the short term. Speculative capital leaves a country when it senses that
the host economy is fragile. The most reliable way is productive restruc-
turing, which promises a less fragile international insertion.
goldenstein 1994, 134
The key to recovery and reinsertion thus lies in productive restructuring to

meet the conditions of capitalist profitability demanded by international in-
vestors, whilst striving to ensure (but without demanding) that the new
incoming international investments are of the productive rather than the
speculative kind.
The neoliberal theses reveal a monumental ignorance of Latin American
historical reality and the new international division of labour. We can sum-
marise their chief flaws as follows:

a. They see foreign capital contributions strictly as the flows that are estab-
lished in the financial account, without including them in the factor ser-
vices balance or in payments for freight and technological services, which
are heavily articulated with foreign capital but included in non-factor
services. Hence they advocate wide-ranging liberalisation of the national
economy and see foreign capital as a means of financing subsequent defi-
cits. But as we have shown, foreign capital does not operate in that way at
all.
b. The combination of economic liberalisation and exchange rate apprecia-
tion leads to far deeper current account deficits than those envisaged by
Franco or Goldenstein. When Franco was president of the Brazilian Cen-
tral Bank (1994–1998) they grew at 106% per annum – enough to dispel
any illusions about their sustainability. Maintaining such an anchor re-
quires a situation of deep depression and asset liquidation, of which the
Argentine economy is the best example. That is incompatible with the
sustained increase in productivity Franco dreams of.
c. It is a big mistake to make productivity increases the main goal of periph-
eral economies. As seen, although the periphery has increased its pro-
ductivity during the new phase of dependency, income patterns have still
not converged with those of the central countries. On the contrary, if an
economy does not control the sources of technological innovation, rising
productivity leads to a deterioration in the terms of trade. Increasingly,
globalisation and the advancing techno-scientific revolution are building
an economy in which the ability to add value depends on the quality and
use value of goods produced rather than productivity. The Latin Ameri-
can economy clearly illustrates this: in the early 1980s it hugely increased
the ratio of foreign trade to gdp, but only by reducing the purchasing
power of its exports. Chile provides the most striking example of this
phenomenon. We return to this topic in Chapter 7.
Following some ephemeral successes, neoliberalism entered into crisis in the
latter half of the 1990s amidst a deepening Latin American balance-of-
payments crisis. Politics took a left turn as the accelerated growth of the US
economy ground to a halt and social movements went on the offensive both
regionally and globally. Movements demanding another kind of globalization
developed through the World Social Forums, and alba helped spread the Bo-
livarian revolution from Venezuela to Ecuador, Bolivia, Nicaragua and Hondu-
ras, breaking Cuba’s isolation in the process. At the same time movements of
indigenous peoples and against the social and economic impact of neoliberal-
ism took off. A space opened up for world system theories to go beyond their
early stage of development in the region.

248 Chapter 5
5 World System Theories and Dependency Revisited
5.1 The World System Paradigm

The crisis of neoliberalism put the spotlight on an approach first developed in
the mid-1970s and in close proximity to dependency analysis – the world sys-
tem theories associated with the Fernand Braudel Center. World system
theories make a threefold contribution to understanding development: they
put the world-economy at the core of their analysis; they establish a tripartite
division of the world economy that includes the semi-periphery, and they ad-
vocate world revolution as the way forward for socialism.
Many of the analytical concerns shared by world system theorists originated
with dependency theory. As seen, theories of dependency highlighted the class
compromise reached in different nation-states and exposed the hierarchical
international division of labour behind it. Capitalist accumulation could be
seen operating at the level of the world economy. But world system theories
went further than dependency theory to locate the political superstructure of
the world-economy in the interstate system. They formulated the concept of a
modern world system and studied its workings, combining notions of hege-
mony, cycles and secular trends to open up a vast, fertile and largely unex-
plored analytical territory.
Highlighting the paradigmatic nature of the world system approach at the
current juncture does not make us advocates of scientific imperialism. Instead
we seek dialogue. The present work affirms the historical and holistic nature of
scientific thought. Science beats a universal path, and scientific thought should
therefore reflect the uniqueness of different historical processes. A dialogue
between the world system and dependency approaches is now vital if we are to
grasp the challenges facing peripheral countries and in particular our present
subject, Latin America. The latter’s original analysis of Latin America and the
world-economy set it apart from developmentalist-nationalist, North Ameri-
can and Soviet perspectives and won hearts and minds, earning the Latin
American social sciences worldwide recognition.50 Now, in the spirit of dia-
logue and scientific integration, we shall turn to the main contributions made
by world system analysis to Latin American development in the 21st century.
50 In Memorial (1994a) and A teoria da dependência: balanço e perspectivas (2000a), Theoto-

nio Dos Santos sees 1960s and 1970s dependency theory as the first stage in constructing a
broader world system theory that would require the two approaches to converge and be-
come integrated with one another.

5.2 Chief Analytical Contributions

We saw that one key contribution made by the world systems approach was to
integrate the world-economy with the political superstructure and analyse them
as a single system. That is where we get the concepts of hegemonic state, sys-
temic cycles and secular trends, which we linked to the tendency of falling rate of
profit, Kondratiev cycles and techno-scientific revolution. Having presented
them in earlier chapters we shall not dwell further on these particular concepts
here. Instead we shall examine how they might help us interpret Latin America’s
trajectory up to the crossroads at which it now finds itself. Firstly, however, let us
touch on two more contributions made by the world systems approach.
One other contribution is the notion of the semi-periphery. In theoretical
terms it refers to countries which enjoy an average level of income because
their profits and losses from globally appropriated economic surpluses bal-
ance out. They achieve this equilibrium by producing high and low value-
added goods in equal measure. But as Wallerstein and Arrighi make clear, the
semi-periphery performs more of a political than an economic function. It sta-
bilises the world system by mobilising the expectation of ascent, even though
few states actually achieve this.
Although we agree with Wallerstein and Arrighi that the semi-periphery
performs a political function, we think its role should not be exaggerated. The
international division of labour rests far more on polarised relationships than
the presence of this intermediate category. And as Florestan Fernandes points
out, inter-ruling class solidarity finds a much firmer basis in super-exploitation
and on restricting a competitive internal order than in expectations of upward
mobility per se. In addition, there are also empirical problems with defining
semi-peripheral status. The main indicator used by Arrighi (1997a) and Waller-
stein (2011a) is a country’s percentage share of the per capita income enjoyed
by the organic core of the world economy, i.e. the hegemon and the central
countries. Their long list of semi-peripheral countries includes the likes of Bra-
zil and Mexico, whose share according to the authors’ own World Bank data is
less than 20%. So it would seem to us that including them is going too far and
suggests a lack of well-defined empirical criteria for measuring the size of this
zone within the world economy.
Arrighi (1997a) locates national insertion into the world economy at the
level of one of five categories. A country might belong to the organic core, the
semi-periphery or the periphery, or else lie in a transitional zone either be-
tween organic core and semi-periphery or periphery and semi-periphery. But
neither he nor Wallerstein base their limits on an empirical measure. So let us
propose one. Our measure determines a country’s level of insertion by dividing

250 Chapter 5
the income of the organic core into equal parts in order to locate the main
zones and mark the limits of the transition zones between them. For example,
if we assign a 10% width to each transitional zone, then the periphery com-
prises countries with up to 27% of the per capita income of the organic core;
the semi-periphery represents those with 37–64%, and the organic core, those
exceeding 74%. Applying this measure to Arrighi’s figures, Latin America can-
not be considered part of the semi-periphery. If we use Maddison’s indicators,
which calculate per capita income according to domestic consumption capac-
ity, we find that Latin America was in the transition zone between the periph-
ery and the semi-periphery for most of the 20th century before descending
towards the periphery in the 1980s (see Figure 5.4). But indicators should not
replace qualitative analysis, which should take into account a region’s ranking
in the international division of labour and how it relates to geopolitical fac-
tors.51 When Latin America was closer to the semi-periphery it formed part of
its lower rung and therefore depended on the world economy. Conceptually
speaking this made its condition more peripheral than one resembling a state
of equilibrium.
50.00%
45.00%
40.00%
35.00%
30.00%
25.00% Maddison
Arrighi
20.00%
15.00%
10.00%
5.00%
0.00%
1900 1913 1929 1938 1950 1973 1980 1998 2002 2008
Figure 5.4 Latin America gdp per capita (as a percentage of the organic core of the World
economy)
Source: cem, based on Maddison (2010) and Arrighi (2002)
51 The cases of Argentina and Uruguay are illustrative here. Although their gdp per capita
levels were similar to those of the core countries in the 1920s/1930s, they formed part of
the periphery. In the decades that followed, these levels sank far below those in world
capitalism’s organic core because of their need to retain their position as agro-exporting
countries in the international division of labour and the difficulty of developing
industry.

A third contribution made by the world systems approach concerns revolu-

tionary strategy. For Wallerstein, the crisis of the modern world system is also
the crisis of the interstate system. It took hold in 1968 and has manifested itself
in the crises of the social welfare, developmentalist and socialist states. These
three forms are but different expressions of liberal reformism, which uses the
State and the nation as institutional and ideological instruments of mass con-
trol. The social welfare state displaces social pressure to improve living stan-
dards and manages them at a rhythm suited to capitalist accumulation through
a bureaucracy that keeps the masses passively waiting in expectation. That
wait is rewarded with by slow but steady improvements in living standards.
The developmentalist state also promotes reform but in a different way. There,
social improvements and state welfare are conditional upon the degree of de-
velopment achieved by the state and its public policies. That conditionality
means the masses must wait longer for social reforms. But development is seen
as a gradual, ongoing process, and if at first the masses share little in its fruits
they ought to benefit more once development itself picks up pace.
The socialist state was no exception to liberal hegemony. It accepted its
main postulates, which in short state that the nation is the fundamental sphere
of social organization and that revolution cannot be international but must
take place within the confines of national sovereignty. The Cold War was
grounded in the adherence of both socialism and liberalism to these princi-
ples, restricting both ideologies’ scope of action to their respective areas of in-
fluence. But the socialism that emerged bore the scars of liberalism and chose
not to destroy and supersede the State or the interstate system guaranteeing
capitalist and liberal domination.
For Wallerstein, nationalism was as an antidote to socialism that allowed
liberalism to hold off the latter’s challenge for over a century (1995, 1999b,
2000a). The big fear of 19th century liberals, one they shared with conservatives
like Montesquieu and Tocqueville, was that if freedom were extended to the
propertyless in the form of universal suffrage then it would lead to the dictator-
ship of the majority; hence, their extreme reluctance to make such a move.
Liberalism was an ideology centred on the individual, whom it sought to
defend against State tyranny by organizing a representative system that safe-
guarded the individual right to property, thought and expression. It was there-
fore vulnerable to an ideology like socialism that associated freedom with de-
fending the interests of the popular masses.
Faced with socialist pressure to universalise civil and political rights, liberals
resorted to repression while seeking a way out of their impasse. This was pro-
vided by nationalism – an ideology for the whole nation centred on the power
of the State to make social improvements. This nationalism would become

252 Chapter 5
intertwined with imperialism, chauvinism and hostility towards foreigners.

And international surplus appropriation would become crucial to its ability to
raise the living standards of the masses and withstand the pressures resulting
from political participation.
As the author observes, this represented a long social process. Its diffusion
confined socialism to the national sphere and made it a divisive ideology as it
addressed itself to just one sector and not the whole nation. This led to social-
ism’s political defeat globally, notwithstanding some local victories where the
State failed to persuade the masses that their lives would improve in the me-
dium to long run.
The weakest link in liberalism was the developmentalist state. Wallerstein
(1996c) describes dependency theory as a politically radical approach that de-
nounces the shortcomings of developmentalism and its promise of social re-
form. But he notes that its programme for economic change was disappointing
and failed to live up to its radicalism because it relied on the State:
The dependentistas were very radical politically. When one looked at the
economic program recommended by the dependentistas, however, it was
disappointing; it was simply one more proposal for state action, with per-
haps a greater insistence on “delinking” than in other variants.
wallerstein, 1996c, 356
For Wallerstein, the prolonged crisis of the world-economy and the concomi-
tant exhaustion of its secular trends have plunged liberal ideology, and with
it the nation-state, into permanent decline. The struggle for human emancipa-
tion has broken out of the prison of the nation-state and gone global. 1968 was
the first sign of this process: a worldwide movement that took up the French
Revolution’s demands for liberty, equality and fraternity and turned it on im-
perialism, technocracy, inequality and intolerance. Conservative recomposi-
tion does not disprove Wallerstein’s postulates. Quite the opposite. Liberalism
is a centrist ideology of negotiation, and its displacement by neoliberal funda-
mentalism shows just how hard it has become for the system to negotiate. The
fall of the Berlin Wall and collapse of the Soviet Union in 1989–1991 further
exhausted liberalism by ending the prospect of socialism in one country or
region. Conservatism in the guise of neoliberalism has been followed by social-
ism in the form of globally articulated social and political movements, and the
two now compete to fill the void left by liberalism. More than ever, global
struggles are now at the centre of social struggles and are increasingly crucial
to winning national and regional victories.

6 Drawing a Balance
What can we learn from the world systems approach that might help us situate
Latin America within the world system’s current stage of development?
The concept of systemic cycles shows us how certain patterns repeat them-
selves in different structural contexts determined by the level of development
of the system’s secular trends. Applying a cyclical analysis and emphasising
recurrent patterns, it is not hard to prove our assertion in Chapter 4 that if
Latin America takes the neoliberal path of remaining the periphery of a deca-
dent hegemon intent on delaying its own descent by wielding regional power,
then it risks playing the same role in the world system as Asian colonies previ-
ously did under British hegemony.
When ideologically hegemonised British colonies or quasi-colonies such as
India and China applied policies borne of decline, they achieved the worst out-
comes imaginable: negligible or negative growth rates, mounting social tensions
and sedition. Meanwhile, the protection costs associated with the world-system
began to outweigh the hegemon’s military capacity and its need to earn legiti-
macy at national and regional levels in order to project itself as a world leader.
This meant there was little resistance to British Empire’s decolonisation pro-
cess, unlike in the cases of smaller powers such as France and Portugal.
Looking at Latin America and its place in the world, we find both similari-
ties and differences. Its growth was restricted by secular processes that between
1980 and 2003 took the form of financial dependency. As the region submitted
to neoliberalism in this period, the macroeconomy that had previously sup-
ported growth was torn asunder. As a result it was plunged into deep economic
decline, which saw its growth rates fall behind those of the central countries
and the world economy. Any illusions of semi-peripheral status were shattered
as it sank further into the periphery. In 2003, however, Latin American articula-
tion with the Chinese economy and its dynamic of accumulation without ex-
propriation helped to equalise the region’s balance of payments and contain
the decline without actually reversing it, as a function of the tendency towards
positive terms of trade (Figures 5.4 and 5.5). But as we saw earlier, this window
of opportunity is temporary and can hardly be kept open if it strengthens
agrarian and primary-exporting bourgeoisies within the power structures of
Latin American states.
Yet history is not merely a series of repetitions; nor can it be determined at
a theoretical level alone. Decisions are taken concretely, in practice. Historical
time and the hegemon’s power of systemic aggregation are facing mounting
difficulties. The current crisis is not just hegemonic, but a crisis of historical

254 Chapter 5
140.00%
120.00%
100.00%
80.00%
60.00%
40.00%
20.00%
0.00%
1900 1913 1939 1950 1973 1980 1998 2002 2008
Figure 5.5 Latin America gdp per capita (as a % of World economy gdp per capita)
Source: Based on Maddison (2010) and Arrighi, Brewer, and Silver
(2002)
capitalism, imperialism and occidentalism. It is no coincidence that it has

erupted most forcefully in the East, where it has tied down so much of the he-
gemon’s military and financial apparatus. But the final victory over imperial-
ism will not be won in one region alone. Latin America can use the space that
has opened up to act decisively in reconstructing its pathways to development
and establishing the framework of a new, post-hegemonic world system. As
Emir Sader (2009) points out, the ‘mole’ – Marx’s metaphor for the hidden na-
ture of revolutionary processes until they suddenly become visible – has resur-
faced in the political crisis of neoliberalism afflicting Latin America and the
various left and centre-left projects reshaping public policy and the region’s
political-ideological profile. Even so, such projects have failed to overturn neo-
liberal political economy in the region as a whole. Instead it has survived in a
modified form in Brazil and in its more orthodox form in Mexico, Colombia,
Chile and Peru. These are among the most populous countries in the region,
with around 400 million inhabitants and 80% of the overall population.52
Latin America can only avoid peripheralisation by creating a new society
based on increasing the value of its labour power. That would imply all-out
confrontation with dependent capitalist structures and imperialism. But there
are several reasons why such a project could also attract significant interna-
tional support from various political, social and economic forces in the world
52 Note to the English edition: The coups in Paraguay (2012) and Brazil (2016), along with the
defeat of Kirchnerism at the polls in Argentina in 2015 have played a key part in the neo-
conservative offensive in Latin America’s Southern Cone during the 2010s.

economy. Many of the forces leading nation-states have historical ties to social
movements, which are now increasingly united against super-exploitation. As
their mobilising power expands, new leaderships could seek to channel this
demand politically. Furthermore, attempts to formulate an imperial response
to the crisis of historical capitalism are increasingly being resisted by bour-
geois fractions in the central countries, who fear a fortified US dirigism. Lastly,
enterprises and the State are becoming more autonomous from each other due
to the ever more complex nature of the world economy and hegemonic crisis.
This explains why Communist Party-led China is now challenging US leader-
ship in attracting international resources. The increased value of dependent
country labour power makes for a productivity-cost ratio that, viewed in isola-
tion, favours investment. Big international capital’s reluctance to accept this
rise in value might not be shared by other sectors of capital who, less global but
competitively driven, could seek to occupy such a space.
As for the debate over whether the antisystemic movement should be na-
tional, regional or global, we think world systems theorists are absolutely right
to argue that the present conjuncture has brought these dimensions much
closer together. There is now much less space for them to exist independently,
and socialism cannot last unless it is a global process. Nevertheless, these di-
mensions still enjoy a degree of autonomy, and it would be very mistaken to
deny that in the name of world revolution. Antisystemic movements cannot
project themselves globally without winning clear national, regional and inter-
regional victories, which feed off each other. As dependency theory and some
neo-developmentalist currents posit, a continentally sized peripheral state
with average productivity levels is still a key site of policy implementation. The
example of China shows that such states can play a crucial economic and po-
litical role. In Latin America, Brazil and Mexico’s technological, economic, so-
cial, political and cultural foundations are heterogeneous, and both countries
are also heavily populated. But their populations and internal markets have
never been sufficiently integrated into locally available productive forces. They
should therefore embark upon major projects of national integration that
alone would raise their growth rates well above the levels achieved under the
neoliberal model. By socialising the productive forces among the population,
this integration would transform Brazil and Mexico’s productive capacities vis-
à-vis science, technology and culture. At the same time it would represent a
major source of regional and even global articulation by politically and materi-
ally influencing the countries most crucial to driving forward the trend towards
multipolarity, such as the brics.
Today Latin America has reached a crossroads. It emerged from its 1999–
2009 balance-of-payments crisis, which it mitigated by reversing the decline in

256 Chapter 5
140 132
119
120
100
80 73.1
60
46.1
40 37
22.3
20
0
1956–1960 1961–1967 1968–1981 1982–1990 1991–1998 1999–2009
Figure 5.6 Foreign capital inflows as a percentage of payments for utilities, interests and
factor services
Source: cepal (1985, 1992, 2010). Non-factor services travel
excluded
its terms of trade, and in 2010 embarked on a new cycle of expanding foreign
capital inflows. During this new period the axis of global economic growth has
shifted from the central countries towards East Asia (notably China) and the
periphery. This offers the region a window of opportunity and new hope. It
could take advantage of the potentially unique convergence of the period of
cyclical capital inflows with the reversal of the decline in terms of trade to re-
ally boost its global influence. But to seize this opportunity it must confront
the structural problems of exclusion, which can be both internal (poverty and
misery in various guises) and external (peripherisation). This is a necessary
pre-condition for Latin America’s expansion to be given sustainable founda-
tions that rely ultimately on the economic, social, political and cultural em-
powerment of its peoples. Conversely, however, if this favourable period for
terms of trade and incoming foreign capital ends and said foundations are not
in place, then the region could be plunged into a profound crisis, which would
see its production and export model reprimarised during the window of
opportunity.53
53 Note to the English edition: In 2014 the cycle of foreign capital inflows was interrupted,
and the commodity boom has entered into decline ever since. This has triggered a serious
political crisis in the region. The crisis has severely reduced the space for centrism and put
enormous pressure on centre-left and left governments who, despite making varying de-
grees of progress, have failed to dismantle the financial and productive structure of de-
pendent capitalism, thereby facilitating a neoconservative backlash.

Chapter 6
Revisiting the Political Economy of Dependency in

the Light of Marx and Contemporary Capitalism
In this chapter we revisit the political economy of dependency, focussing on

the discussion around the work of Ruy Mauro Marini. One of the key questions
in Latin American political economy concerns whether dependent capitalism
is governed by its own laws, and in particular the relevance of the concepts of
labour superexploitation and sub-imperialism. Proceeding from a critical as-
sessment of Marini’s work and the debates around it, we aim to reformulate
these two concepts and contribute towards updating the Marxist theory of de-
pendency as a tool for understanding contemporary capitalism and the his-
torical forms it has assumed in Latin America.
In the first section we look at the main concepts developed by Marini in
elaborating a political economy of dependency, examining his claim that the
globalization of the neoliberal model of accumulation means one of them also
applies to the capitalist core. Then in the second section we present some of
the leading critiques of his approach from both different strains of develop-
mentalism and from within Marxist dependency theory itself. In the third sec-
tion we discuss Marini’s work in light of these critiques, maintaining his ap-
proach by reworking aspects that in our view must be developed and updated.
Finally, we analyse the historical forms assumed by super-exploitation in Latin
America, highlighting the hegemonic nature of the neoliberal model and its
contradictions.
1 Marini and the Political Economy of Dependent Capitalism
Marini first systematically formulated the concept of super-exploitation in Di-

aléctica de la dependencia (1973). The book expanded upon his 1972 article for
the University of Chile’s Socio-Economic Studies Centre (ceso)’s journal, So-
ciedad y desarrollo (Marini 1980) by examining the stages of industrialisation in
Latin America.1 He also added a postscript. During the 1970s he developed the
book’s main theses over two articles: Plusvalía extraordinaria y acumulación de
1 The concept of labour super-exploitation had appeared in embryonic form in Subdesarrollo

y revolución (1968) and then more clearly in La acumulación capitalista dependiente y la

258 Chapter 6
capital (Extraordinary surplus value and capital accumulation, 1979), which he

considered an essential complement to it; and El ciclo del capital en la economía
dependiente (The cycle of capital in the dependent economy, 1979). In the 1990s
he led efforts by the Latin American Studies Centre at the Universidad Nacio-
nal Autónoma de México (cela/unam) to draw up a balance of Latin Ameri-
can thought during the transition to the neoliberal model of accumulation
imposed on the region. This was when he wrote Proceso y tendencias de la glo-
balización capitalista (Capitalist globalization: trends and processes, 1996),
where he postulated the extension of labour super-exploitation – understood
as constitutive of dependent capitalism – to the central countries as a function
of changes to the international division of labour and the global patterns of
accumulation ushered in by neoliberalism.
In developing the concept of labour super-exploitation, Marini felt obliged
to go beyond the basic premise underlying Marx’s notion of surplus value –
that for the working class as a whole, over the long term and notwithstanding
conjunctural deviations, the price of labour power is equal to its value. He
went on to posit that exploitation takes place in two main ways: by increasing
workers’ productive capacity, which is linked to higher productivity; and by
increasing the exploitation of workers, which constitutes super-exploitation
and involves either (a) prolonging the working day or intensifying work with-
out commensurate remuneration or (b) appropriating part of the worker’s
consumption-fund by slashing wages and attacking his/her living conditions.
Overall, super-exploitation signifies a fall in the prices of labour power below
their value, such that the useful life of labour power is shortened because it is
depleted faster.
Nonetheless, the greater exploitation of workers is not restricted to situa-
tions where productivity increases are minimal or non-existent. In his account,
the two forms of exploitation are not mutually exclusive but intertwined. Thus
in the capitalist world economy as a whole they tend to compensate each oth-
er, as the increase in labour’s productive capacity means workers can be and
effectively are exploited at a higher rate. This is because raising the productive
capacity of labour allows for an increase not only in the general rate of surplus
value and relative surplus value, but also in extraordinary surplus value and
surplus value appropriation. Greater productive capacity only translates into
relative surplus value if it reduces the value of labour power, i.e., insofar as it
cheapens essential consumer goods, thereby reducing necessary labour time
and raising wages. This occurs as a consequence of inter-capitalist competition
s uperexplotación del trabajo (1972), based on his intervention at the gathering of Latin Ameri-
can and Italian economists in Rome.

Revisiting the Political Economy of Dependency 259
and of workers increasing their purchasing power and achieving a partial re-
distribution of the surplus through struggle. But enhanced productive capacity
can also generate extraordinary surplus value – the overriding aim of individu-
al capitalists – thus prompting capitals unable to neutralise its effect via tech-
nological innovation to resort to increasing the rate of labour exploitation.
Because of the way they are inserted into capital’s cycle of expanded repro-
duction, dependent bourgeoisies occupying a subordinate position in the
international division of labour often exploit workers more in order to com-
pensate for the surplus value transferred to the core on account of its techno-
logical monopoly. These transfers relate to different historical contexts and
patterns of capital reproduction. For Marini, the greater labour exploitation in
dependent countries is a function of the following factors:
(a) the pursuit of extraordinary profit by ruling oligarchies in the old prima-
ry-exporting economy. Their quest is driven by the world market but hin-
dered by low productivity, and leads them to lengthen the working day in
order to meet the demand from central countries;
(b) the introduction of technological development linked to foreign capital
into the export sector. This can involve the devaluation of commodities
primarily destined for consumption not by the local working class but by
bourgeoisies/workers in the core and local oligarchies/middle layers. It
can also involve the mass of surplus value in the export sector being dis-
tributed unequally, in keeping with the greater technological heterogene-
ity imposed by fixed prices of production. Thus on one hand, the rising
organic composition of capital combines with the devaluation of com-
modities, with marginal effects on the rate of surplus value, to help re-
duce the rate of profit; on the other, technological monopoly distributes
the mass of value unequally to the detriment of capitals with a lower
technical composition;
(c) the introduction of foreign technology and technological monopoly into
an industrial sector geared towards luxury consumer goods. This estab-
lishes only a weak relationship between the devaluation of commodities
and devaluation of labour power, and moves market value towards the
capitals with the highest technical composition in the segment in
question;
(d) extraordinary surplus value establishing itself as an internal structural
component of dependent capitalism in service of the technological mo-
nopoly imposed by the introduction of foreign technology. Extraordinary
surplus value is established not only within branches of production, but
also at the intersectoral level, ‘violating’ prices of production by replac-
ing labour power with machinery in order to transfer value to the luxury

260 Chapter 6
consumer goods sector. This converts part of the workers’ demand into
unaccumulated surplus value, i.e. into demand from those who consume
by spending the economic surplus;
(e) foreign enterprises in dependent countries sending capital remittances
to their parent companies – a practice encouraged by global strategic
planning at the corporate level, lack of competitiveness locally, and in-
vestment restrictions imposed by labour super-exploitation.
(f) extraordinary surplus value in international trade being fixed to the ad-
vantage of corporate monopolies based in central countries. Along with
the growing international division of labour, this is a function of the con-
tradiction between increasing technological transfer to dependent coun-
tries in order to produce parts, components or less complex products,
and the relative economy made on this consumption by technological
monopolies and consumers in the central countries.
Essentially then, labour super-exploitation arises as a means of compensating
for intrasectoral and intersectoral value transfers, resorted to by capitals with
below-average production conditions both internally and internationally.
These capitals are the biggest employers of labour power in their countries and
so determine the general framework of the labour market. For Marini, super-
exploitation tends to hinder the transition from absolute to relative surplus
value as the dominant form of accumulation and produces its own form of
relative surplus value: an increase in the intensity of work without extra remu-
neration to match the greater exhaustion of labour power. Once it becomes
generalised, this diminishes labour power’s moral-historical value and increas-
es surplus labour time. Super-exploitation requires on the one hand high rates
of unemployment and underemployment in order to level down the prices of
labour power below their value; and on the other, restricted democracies or
dictatorial political regimes to impose those prices.
Dependent patterns of capitalist accumulation are marked by heavy con-
centrations of income and property and led by those factions of the bourgeoi-
sie located in the primary-export, consumer luxury, or financial sectors.
Productive investment in the domestic market is limited in the sectors produc-
ing essential consumer goods. These sectors experience premature concentra-
tion and monopolisation and their dynamism relies in part on the i nternational
market.
Marini notes that an internal market reliant on luxury goods consumption
and State demand cannot satisfy the dynamic of industrial investment in de-
pendent countries that have attained an average organic composition and are
at the financial capital stage. Hence they are drawn into subimperialist expan-
sion, as manifested by commodity/capital exports, the pursuit of raw materials
or market control, and geopolitical projects targeting peripheral countries and

regions. However their opportunities are limited to spaces and conjunctures

where the big imperialist centres and corporations present less of an obstacle.
For Marini, only a few countries can play a subimperialist role, and so in Latin
America that means Brazil. Subimperialism not only offers economic realisa-
tion by overcoming the limitations of the internal market, but, once fully
formed, offers autonomy within dependency. It does this by developing heavy
industry (notably the military kind), creating internal decision-making cen-
tres, and rising up international hierarchies of power and production chains.
But subimperialism is unable to support its claims for autonomy by cutting its
financial, technological and political ties with imperialism and anchoring
its model of accumulation in price increases and the devaluation of labour
power. This seriously limits its capacity for expansion (Cf. Marini 1974, 1977a,
1978).
In the 1990s, Marini claimed that labour super-exploitation was no longer
exclusive to dependent accumulation because it was spreading to the core.
Globalization processes would throw up new sources of extraordinary surplus
value by shifting the monopoly from technology to science and by fragmenting
product manufacture into parts and components, orienting it towards world
markets. This would enable the periphery to combine high technology and
super-exploited labour power in taking over some of the production previous-
ly performed in central countries (Marini 1996). Alongside the new organisa-
tional structure of transnational corporations, this meant peripheral wage
rates would level down below those in the core and firms with a strictly na-
tional base would sink below average productivity conditions on international
markets, leading them to the greater exploitation of workers.
2 Critiques and Debates
Marini’s ideas have been challenged from various quarters. The strongest
attacks have their origins in Weberian dependency theory, neo-developmen-
talism and endogenism. Other critiques have emanated from those within
Marxist dependency theory itself who have been encouraged to sharpen Mari-
ni’s paradigmatic conceptual frameworks by the rise of the Latin American left
in the 21st century. These frameworks are located at a high level of abstraction
and are of a general and introductory nature. They are therefore open to be
developed, as the author recognises in his postscript to Dialéctica de la
dependencia:
Dialéctica de la dependencia does not claim to be anything beyond an in-

troduction to the subject of my research and the general lines that have

262 Chapter 6
guided me in carrying it out. I am publishing it to give an insight into

some of the conclusions I have reached, and perhaps help others in their
efforts to study dependent capitalism’s laws of development, as well as
allow myself an overview of the terrain I am trying to map.
I shall therefore use this postscriptum to clear up some issues and mis-
interpretations that have arisen in regard to the text. Essentially, despite
attempting to qualify my more emphatic declarations, space limitations
led me to describe certain tendencies in rather broad strokes, sometimes
giving the impression they were very pronounced. In addition, the essay’s
own level of abstraction did not lend itself easily to the analysis of par-
ticular situations, which would have allowed me to relativise matters
more.
marini 1973, 81–82
The leading critique to come out of the Weberian approach to dependency was
formulated by Fernando Henrique Cardoso, both individually and in his joint
work with the Brazilian neo-developmentalist José Serra. Cardoso dismisses
the idea put forward by Marini and supported by Theotonio Dos Santos and
Vânia Bambirra that dependent capitalism has its own laws of motion, arguing
that this can only be so if it represents a specific mode of production (Cardoso
1972, 1975, 1993a). For Cardoso, industrial capitalism is based on relative sur-
plus value and expanding productivity. It conditions the new forms of depen-
dency to have emerged in Latin America since the 1950s, which internalised
industrial capitalism or its technologies. Super-exploitation can occur inde-
pendently of the dynamics of modern dependent capitalism. Specifically, it
can arise either from political determinations that act on the latter’s structural
frameworks and weaken working class struggle; or else as an expression of
modes of production stuck between precapitalist economic forms and capital-
ism, limiting the latter’s development. Cardoso argues that at the heart of any
analysis of the dynamics of dependency must lie the notion of development
and the understanding that it is conditioned by the expansion of international
capitalism (Cardoso 2010). Instead of a theory of dependency, he prefers to
elaborate a global theory of capitalist development that can accommodate the
articulation of internal and external forces comprised of social classes and po-
litical groups whose interaction determines the concrete and particular forms
assumed by capitalist development in the periphery. Although dependency
analysis can interpret these concrete and particular forms, their conjunctural
and determined nature means its predictive ability is limited to more general
developmental factors (Cardoso 1972).

In analysing international value transfers – which they surprisingly dismiss

on the grounds that low international labour mobility makes it impossible to
measure socially necessary labour – Cardoso and Serra (1978) accuse Marini of
confusing unequal exchange with deteriorating terms of trade.2 They argue
that unequal exchange does not undermine the rate of profit, and that the de-
cline in the terms of trade only does so when prices fall in the periphery inde-
pendently of variations in productivity. They claim that Marini’s theory of
super-exploitation is founded on conditions of stagnation or declining produc-
tivity in the peripheral export sector. They also note that his theory gives
precedence to the rate of surplus value over the rate of profit. In so doing, it
ignores the part that a reduction in the cost of constant capital can play in the
latter’s recovery, highlighting only the role of a reduction in labour costs. His
theory of super-exploitation requires production in the essential consumer
goods sector to be stagnant. This prompts a search for external markets, which
forms the basis of his theory of sub-imperialism. The authors posit that al-
though productivity was concentrated in the consumer durables sector it also
rose in the essential consumer goods sector, and in both sectors by much more
than the lengthening of the working day.3 For them, wage restraints imposed
by military governments are determined by their reactionary nature rather
than the needs of dependent capitalism. They conclude that the choice of ‘so-
cialism or fascism’ posed by Theotonio Dos Santos and in his own way by Mari-
ni rests on the idea of a stagnating dependent capitalism, and that the latter
provides little empirical support for his analysis.
Cardoso and Serra’s work has become the paradigmatic neo-developmentalist
critique of Ruy Mauro Marini, Theotonio Dos Santos, Vânia Bambirra and An-
dre Gunder Frank. Yet they ignore the first three authors’ explicit criticism of
the way Frank (1966) identifies dependency with a colonial situation by ex-
cluding the development of the productive forces and the nation-state’s formal
2 According to Cardoso and Serra, unequal exchange is expressed in productivity differentials

between the peripheral and central export sectors in favour of the latter, and has no impact
upon commodity price movements in either region. Deterioration of the terms of trade im-
plies not only productivity differentials in the centre’s favour, but also price differentials, with
prices affected negatively in the periphery but remaining unchanged in the centres (Cardoso
and Serra 1978).
3 Cardoso and Serra confuse increased productivity with relative surplus value without asking
how it affects the degree of exploitation in the economy and the value of wage-goods, and
how it articulates itself with demand. Similarly, Mantega cites Desventuras to claim that
“Here the data is even more eloquent, because it shows that from 1959 to 1970 industrial pro-
ductivity (not distributed to workers) representing relative surplus value grew by 75% (…)
and real wages dropped by 35%” (Mantega 1984, 271).

264 Chapter 6
autonomy4 (Cardoso and Serra 1978). Gabriel Palma goes down a similar route
in a text where he contrasts ceso’s approach to dependency with Marx and
describes Cardoso and Falleto’s Dependencia y desarrollo en América Latina
(1984) and its “Post-scriptum” (1979a) as the first analytical framework capable
of identifying dependency’s inner dynamic (Palma 1978). According to Palma,
Marx had argued that development would only take place in countries within
the Asiatic mode of production and lacking internal dynamism where it was in-
troduced by European capitalism; and that having surpassed the primitive ac-
cumulation phase they would be able to incorporate themselves at the highest
levels of capitalist development, regardless of whether the initial agent of that
development was external or internal. In stark contrast, according to Palma,
the ceso school denied the possibility of development within dependency.
Agustín Cueva argues in Problemas y perspectivas de la teoría de la depen-
dencia (Problems and perspectives of dependency theory) that Marini stylises
the differences between classic and dependent capitalism and works with
models rather than laws. For Cueva, whilst the presence of imperialism and
combined modes of production do modify capitalism’s general laws, the differ-
ences are quantitative rather than qualitative, offering no basis for a theory of
dependency. The differences between social formations should be located
more in their own internal relationships than the relationships between de-
pendent and industrial countries.5 He argues that underdevelopment explains
restrictions on working-class consumption better than the concept of super-
exploitation, and is applicable to central countries (e.g. 1940s France). Although
suggestive, the idea of super-exploitation suffers from historical inconsisten-
cies. For example, it underestimates the Argentine population’s high meat con-
sumption and the popular consumption of industrial products across Latin
America (Cueva 1974). Cueva would later qualify his claims in Las democracias
restringidas de America latina (The restricted democracies of Latin America)
where he revisited the issue of super-exploitation, acknowledging its histori-
cal, if not theoretical, relevance as a deviation away from the pure laws of the
development of capital imposed by imperialism. Nonetheless, despite recog-
nising super-exploitation’s importance, he maintained that the weight of
neoliberal imperialism had historically prevented subimperialism from ever
materialising (Cueva 1989).
4 The influence of Cardoso and Serra (1978) on how Marini and Marxist dependency theory
were read in Brazil can be seen in Luiz Carlos Bresser Pereira (1982), Guido Mantega (1984)
and Lidia Goldenstein (1994).
5 Hector Diaz Polanco (1979) takes a similar position in his comments on El ciclo del capital en
la economia dependiente (Marini 1979).

Castañeda and Hett, whose theory of emergent Latin American imperial-

isms amounts to a version of neodevelopmentalism, question the conceptual
pillars of super-exploitation. For them, there is no theoretical basis for claiming
that the price of labour power has sunk below its value because its value is de-
termined historically by class struggle and not in the abstract (Castañeda and
Hett 1982). Likewise, in an article containing some truly crass errors in its pre-
sentation of Marini’s thought, Jose Valenzuela Feijóo maintains that conjun-
tural cycles aside, the prices of labour power will over the long term come to
match their value because they are determined by concrete reality6 (Feijóo
1997). More recently, Claudio Katz has put forward the idea of dependency
without super-exploitation. He argues that the periphery presents low wages
rather than remuneration below the value of labour power. Peripheral capital-
ism pays wages equal to labour power’s low use/exchange value. This meets
workers’ physiological and historical-social needs, which are conditioned by
“productivity, extent of accumulation, class struggle and cultural patterns in
each country” (Katz 2018).
Among those closer to Marxist dependency theory, Cristobal Kay acknowl-
edges the importance of Marini’s contribution but remarks that he was unable
to fully demonstrate his hypotheses because he never formulated them math-
ematically (Kay 1989). One issue very pertinent to the super-exploitation
debate is whether, as Marx suggests, super-exploitation is compatible with
relative surplus value, thus leading to increased productivity and cheaper
wage-goods. We attempted in a recent article to make some progress towards
mathematically formulating super-exploitation (Martins 2017). In it we argued
there that the relative surplus value/super-exploitation compatibility thesis
should be analysed in the light of capital’s concrete patterns of reproduction,
and that Marini does not offer enough elements to do this. We therefore pos-
ited the need to rework the concept of super-exploitation, which we discussed
further in the article and understand as being crucial to the task of developing
Marini’s formulations. We also identified a fourth form of exploitation that
needs integrating into the concept of super-exploitation: the increase in the
value of labour power associated with workers being trained and upskilled
without a commensurate increase in their wages. We noted that although this
fourth form is not explicit in Marini, it does come up in several passages (Mar-
tins 2017).
6 See Sobrexplotación y dependencia, published months after Marini’s death (Valenzuela Feijóo
1997). In one of his various inexplicable misreadings of Marini, Valenzuela attributes to the
former the idea that the rate of surplus value in peripheral countries is higher than in the
core, with a higher rate of labour super-exploitation – arguments completely alien to Mari-
ni’s way of thinking.

266 Chapter 6
Marcelo Carcanholo disagrees with describing Marini’s concept as the su-

per-exploitation of labour, arguing that the super-exploitation of labour power
is more appropriate.7 He also takes Marini to task for attributing relative sur-
plus value to increased labour intensity (Carcanholo 2017). Another key issue
in the super-exploitation debate concerns whether it has spread to countries
in the core. Those claiming it has argue that extraordinary surplus value has
led to a restructuring of the international division of labour and new monopo-
listic forms, whilst their opponents counter that super-exploitation is specific
to dependent capitalism (Osório 2013, Carcanholo 2017).
In the next section we critically assess Marini’s work in order to then open
up a dialogue with the criticisms it has attracted.
3 Reformulating the Political Economy of Dependency
Marini left behind a rich and creative body of work that follows Marx’s dialecti-
cal method in proceeding from the most abstract level of analysis towards the
most concrete. He analyses the social formations making up the capitalist world
system and dependent ones in particular by progressing from a general plane,
which starts from the capital production assumptions and extends as far as
actual surplus value production, to the more complex plane of inter-capitalist
circulation and competition, where price-value deviations and surplus-value
transfers between capitals of different technical and organic compositions are
established. Marini is also innovative in his treatment of the more abstract
sphere of inter-capitalist competition at which Marx addresses the general de-
terminants of value transfers in Capital, postulating that extraordinary surplus
value not only functions within the different branches of production but also
between them, thereby violating the prices of production. He shows that tech-
nical progress and extraordinary surplus value are compatible with the as-
sumption of equalised reproduction patterns in Capital Volume 2 by pointing
out that technical progress saves on labour and transfers demand to the luxury
consumer goods sector, thereby articulating Department i to the fraction of
Department ii represented by the latter (Marini 1979b).
7 The opposition between the terms super-exploitation of labour and super-exploitation of

labour power seems to us wrong and not dialectical. Marini uses both, with predominance of
the second. Marx refers both to the exploitation of the labor force and of the worker who
owns it. The fetichism form in which exploitation presents itself is part of the relations that
capital imposes, but constitutes only a dimension of this totality, since the exploitation of
labor power by capital is the exploitation between subjects.

Marini therefore theorises labour super-exploitation by advancing creative-

ly from the plane of capital in general and the more abstract determinants of
inter-capitalist competition to include the specific ways individual social for-
mations function within the framework of the capitalist world system. This
analysis operates at levels of abstraction that Marx proposed but never devel-
oped: the State, international relations of production and the world market.
Much of the criticism of Marini comes either from a formalistic, mechanistic
Marxism incapable of understanding that concepts are transformed by their
need to unfold towards more concrete levels of reality, or from neo-
developmentalist, dependentista and neoliberal schools of thought, which
having chosen the path of subordination are rattled by Marini’s radical critique
of the social, political and economic impact of dependent capitalism. But the
potential unlocked by Marini’s promising theoretical and analytical perspec-
tives is weakened by certain gaps. And where gaps exist, the Marxist theory of
dependency should not sanctify its foundational texts but advance wholeheart-
edly in the direction indicated by Marini and develop his analysis further.
One initial observation concerns the concept of labour super-exploitation
itself. We recognise, along with Jaime Osorio, that it is not formulated in Capi-
tal. This is because in order to construct his theory of surplus value Marx as-
sumed that the prices of labour power correspond to their value (Osório 2004).
But the theoretical roots of super-exploitation are clearly visible even if, for the
reasons stated, they are not developed. We do not need to cite his references in
Volume 1 to the historical significance of the prices of labour power falling be-
low their value – despite then excluding it from his main focus of interest; nor
the point in Volume 3 where he draws out its importance as a counter-tendency
to the rising organic composition of capital and the falling rate of profit. What
it is crucial to highlight here is Marx’s observation in Volume 1 that the value of
labour power is only average if it represents average skill and intensity and
operates in normal conditions of productivity. Otherwise, his/her labour is not
average in value and neither is his/her labour power, as it is being sold below
its value. He is even more explicit upon noting that the general law of capital
valorisation only comes into its own when the individual capitalist employs
average social labour by hiring a number of workers and neutralising the differ-
ences between them:
If one workman required considerably more time for the production of a

commodity than is socially necessary, the duration of the necessary
labour-time would, in his case, sensibly deviate from the labour-time
socially necessary on an average; and consequently his labour would not
count as average labour, nor his labour-power as average labour-power…

268 Chapter 6
(…) Thus the laws of the production of value are only fully realised for the
individual producer, when he produces as a capitalist, and employs a
number of workmen together, whose labour, by its collective nature, is at
once stamped as average social labour.
marx 1974, 306–307
The average value of labour power lies at the core of Marx’s theory of surplus
value and the general laws of capital accumulation, which is founded on price
equalling value when it comes to major numerical quantities. When we talk
about prices falling below the value of labour power in the context of Marxist
theory, we mean the average value of labour power. Where labour power of
average skill and intensity operates below average conditions of productivity,
then it cannot be sold at the value of labour power in general if the price im-
posed on it by competition violates its use value.
Historically, the average value of labour power has been determined in the
capitalist world economy either in a similar way to capital in general, i.e. as a
synthesis of the multiple particularities of the price of labour power, regardless
of its specific concrete expression; or by the value of labour power in average
conditions of production. But in the monopoly situations that predominate in
the current world system our calculations must take into account that (a) the
average conditions of production are established by capitals of a higher com-
position which produce most commodities; (b) the market value of products
tends to move closer to the individual value of commodities produced by this
segment; and (c) conversely, the prices of labour power tend to be determined
by the vast number of workers who sell their labour power at rates below the
average conditions, which pushes its average price below its average value.
The theory of labour super-exploitation should therefore take the system-
atic decline in the price of labour power compared to its average value in the
world economy as its chief indicator. But super-exploitation is not only charac-
terised by its apparent form, i.e. labour power prices deviating from their value.
It is also characterised by the greater exploitation that determines those prices
as a function of value transfers. The integration of social formations into the
capitalist world economy is mediated by dominant classes who enjoy relative
autonomy in managing the national State and establishing spaces of commod-
ity circulation and production. We can therefore describe super-exploitation as
a structural phenomenon that typically occurs when said processes of accumu-
lation are determined internally and externally by monopoly situations which
insert most labour power into conditions of capital productivity well below the
national and international average, with the gap widening rather than closing.
When capitals of average and lower composition are hit by a fall in the rate of
surplus value they respond with the greater exploitation of workers. Thus we

have a second indicator of super-exploitation: labour power prices falling be-

low the prices established by average national conditions of production.
These points need making because contrary to what Jorge Castañeda, Enrique
Hett, José Valenzuela Feijoó and others believe, we cannot assume the price of
labour power in dependent countries is equal to its value because it is determined
by class struggle, regardless of conjunctural fluctuations. Nor does its price repre-
sent our workers’ historical-moral values limited by internal factors, as Claudio
Katz claims. These arguments derive from a methodological nationalism which
makes two mistakes: it understands productivity in national terms and so disar-
ticulates it from the value transfers that act on and within dependent economies,
particularly affecting their large mass of workers.8 They also rest on an erroneous
understanding of the value of labour power that fails to take into consideration
the average social value of labour power in the world capitalist economy.
Cardoso and Serra obscure matters even more. As we saw, they not only ig-
nore the average value of labour power in the world economy but they deny its
existence, arguing that the concept of socially necessary labour is inapplicable
to the world economy because of the labour force’s low level of international
mobility (Cardoso and Serra 1978). As Marini points out in response, low inter-
national labour mobility bears no relation to socially necessary labour in the
world economy, which continues to measure and compare values on the basis
of productivity, and it only affects this measure when it influences productivity
(Marini 1978).9
In making this criticism, we must also recognise that despite successfully
showing that the transfer of value dependent countries suffer determines a
specific form of exploitation in which the price of labour power falls below its
value, Marini never fully broke with methodological nationalism. Without
making it explicit, he does appear to use the concept of the value of labour
power in an exclusively national sense, disarticulating it from its global frame
of reference. This conflicts with his analytical point of departure, i.e. the in
clusion of dependent social formations in the capitalist world economy’s
8 In 2015, income per capita ppp, years of schooling and working hours in Brazil, Mexico, Ar-
gentina and Chile compared to the United States as follows: Brazil had 59% of US years of
schooling, 27.5% of its per capita income and income, and the same working hours; Mexico
65% of schooling, 33.5% of per capita income, and 27% more hours worked, Argentina 75%
of schooling, 36% of per capita income, and the same working hours; and Chile 74.4% of
schooling, 41.7% of per capita income and 13% more working hours (undp 2018 and Confer-
ence Board 2017).
9 Marini notes that the key factor in surplus value transfers and wage differentials in the world
economy is the productivity asymmetries resulting from technological monopolies, and not
the restricted international circulation of labour as authors such as Claudio Katz (2018) and
Samir Amin (1993) have it.

270 Chapter 6
a ccumulation processes. He thus delinks falling prices of labour power from

their average value globally, which can be increased by devaluing the consum-
er essentials associated with greater productive capacity in central countries.
This conceptual confusion led Marini towards affirming that relative sur-
plus value as defined by Marx is incompatible with labour super-exploitation.
Nowhere is he entirely conclusive about this, but it does appear to be the
predominant view in his work. In his response to Cardoso and Serra, he stress-
es the relationship between a revitalised essential consumer goods sector and
the expansion of foreign trade. He thus points out that super-exploitation
embraces a certain type of relative surplus value linked to greater labour in-
tensity which, once generalised, affects labour’s two ‘times’ (necessary and
surplus labour time).
Let us start by pointing out that the concept of super-exploitation is not

identical to that of absolute surplus-value, since it incorporates a type of
relative surplus-value – that which corresponds to an increase in the in-
tensity of labour.
Marini 1973, 92
However, Marini is not clear about what level of analysis he is using to describe
intensity of labour as the form of relative surplus value specific to super-ex-
ploitation – whether he is talking about the mechanisms via which a pure and
abstract category (labour super-exploitation) operates or whether he is direct-
ly analysing concrete reality.
In some passages he appears to propose another methodological approach.
He notes that in dependent countries super-exploitation hinders the transi-
tion to relative surplus value as the dominant form of capital-labour relations.
This opens up the possibility of incorporating relative surplus value in a way
that subordinates it to the greater exploitation of workers:
The fundamental task of the Marxist theory of dependency is to deter-

mine the specific set of laws governing the dependent economy (…)
However, from a rigorously scientific viewpoint, the need to spell out the
general laws of capitalist development means we cannot rely on generali-
ties, like stating that the new form of dependency is founded on relative
surplus value and increased productivity. And we cannot because, as we
have seen, this is the general characteristic of all capitalist development.
The challenge is thus to determine the character assumed by relative sur-
plus value production and increased labour productivity in the depen-
dent economy.
In this sense, my essay contains suggestions that although far from
adequate do allow us a glimpse of the underlying problem facing the
Marxist theory of dependency: the fact that the conditions created by

labour superexploitation in the dependent capitalist economy tend to
hinder its transition from absolute surplus value to relative surplus value
production as the dominant form of capital-labour relations. The dispro-
portionate pull exercised by extraordinary surplus value in the depen-
dent system is a result of this, and corresponds to the expansion of the
industrial reserve army and the relative strangulation of the capacity to
realise production.
marini 1973, 99–100; italics added
Nevertheless, Marini fails to develop this key methodological point. Although

he rightly highlights the centrality of super-exploitation, its compatibility with
relative surplus value cannot be determined at a higher level of theoretical
abstraction but by articulating abstract theory with the concrete analysis of
capital accumulation patterns. Except on the controversial issue of labour
intensity,10 Marini’s attempt to resolve this incompatibility at abstract levels
and then apply it to specific and concrete patterns of accumulation needlessly
weakened his theoretical contribution. His crucial work around social, eco-
nomic and political themes such as capital concentration, soaring inequality,
low wages, tight restrictions on the internal market, sub-imperialism and the
pursuit of socialism as an alternative to dependency renders such a restrictive
hypothesis unnecessary. Because he never empirically or formally demonstrat-
ed the incompatibility he hinted at, his work was exposed to criticisms ground-
ed in the expansion of working-class consumption in certain Latin American
countries that accompanied the growth of the agroexporting sector,11 and in
the notion that relative surplus value becomes the defining feature of capital-
ist development when big industry emerges.
These criticisms were common to Cardoso (1972, 1975, 1993a, 2010), Cardoso
and Serra (1978), Palma (1978) and initially Cueva (1974). They are however
heavily influenced by developmentalism and a mechanistic and equivocal
reading of Marx. Crucially, they disregard super-exploitation and the extent to
10 Marcelo Carcanholo is right to question whether intensity of labour is a form of relative

surplus value. Marini’s hypothesis that a generalised increase in labour intensity without
the corresponding remuneration creates a new axis of value for labour power which af-
fects the two components of the working day runs counter to the idea at the heart of su-
perexploitation – that the prices of labour power are systematically inferior to their value
(Carcanholo 2017).
11 In the first half of the 20th century Argentina and Uruguay attained the highest per capita
consumption of beef in the world. In Argentina, annual per capita consumption leapt from
56.1 kg in the years 1914–19 to 87.9 kg in 1950–59. Between 1914 and 1919 exports exceeded
domestic consumption, with 590,000 tons exported and 460,000 consumed internally, and
after the 1920s domestic consumption became the dynamic axis (Cf. Guadagni, 1964).
272 Chapter 6
which it limits the expansion of relative surplus value. Just because we suggest
relative surplus value might be consistent with the centrality of labour super-
exploitation does not mean we see it as progressive or integral to the most
advanced stages of dependent capitalism. The rise in productivity and the
technical and organic compositions of capital is accompanied by an increase in
the concentration and centralisation of capital and inter-capitalist transfers of
value. In Capital Volume 1, devoted to capital in general, Marx makes some key
points about these processes. His observations cast doubt on the notion that
relative surplus value represents a capitalist future based on technical progress,
and are of a piece with certain formulations in The Communist Manifesto.
For example, in Chapter 32 of Capital Volume 1, Marx notes that the stage
succeeding primitive and prehistoric capital accumulation develops through
the interplay of the immanent laws of capitalist production itself. This new
stage sees the inter-related growth on an expanding scale not only of the coop-
erative form of the labour process, the conscious technical application of sci-
ence, the planned exploitation of the soil, the entanglement of all peoples in
the net of the global market, and the international character of the capitalist
regime, but also of the concentration and centralisation of capital. He goes on
to point out that,
Along with the constantly diminishing number of the magnates of

capital, who usurp and monopolise all advantages of this process of
transformation, grows the mass of misery, oppression, slavery, degrada-
tion, exploitation; but with this too grows the revolt of the working class,
a class always increasing in numbers, and disciplined, united, organised
by the very mechanism of the process of capitalist production itself.
marx 1974, 715
Likewise, Marx and Engels observe in The Communist Manifesto that,
Hitherto, every form of society has been based, as we have already seen,
on the antagonism of oppressing and oppressed classes. But in order to
oppress a class, certain conditions must be assured to it under which it
can, at least, continue its slavish existence. The serf, in the period of serf-
dom, raised himself to membership in the commune, just as the petty
bourgeois, under the yoke of the feudal absolutism, managed to develop
into a bourgeois. The modern labourer, on the contrary, instead of rising
with the process of industry, sinks deeper and deeper below the condi-
tions of existence of his own class. He becomes a pauper, and pauperism
develops more rapidly than population and wealth. And here it becomes
evident, that the bourgeoisie is unfit any longer to be the ruling class in

society, and to impose its conditions of existence upon society as an over-

riding law.
marx and engels 2002, 232–233
The contradictions between super-exploitation and relative surplus value

deepen in the measure that the organic composition of capital, technological
monopoly, the luxury consumer goods sector, the centralisation of capital and
the financialisation of the accumulation process all develop. Ultimately this
leads to relative surplus value being blocked and wage decline affecting large
numbers of workers. We can show this in algebraic terms using three different
scenarios. In the first, we see a given capital before it suffers any transfer of
surplus value. In the second, this capital suffers surplus value transfers that af-
fect the luxury consumer goods sector. In the third, a capital of initially identi-
cal composition and active in the essential consumer goods sector suffers
transfers of surplus value for the same reason:
1) c + v + s = p
v p.y
2) c+ +s=
x z
v p. y
3) c+ +s=
x x
In these equations, c = constant capital; v = variable capital; x = the devaluation
of commodities representing essential consumer goods, which outweighs
changes in their productivity and so drives their price below their value; s = sur-
plus value; p = the value of the product; y = the variation in the productivity of
the capital of a lower technical composition; and z = the average devaluation of
commodities in the luxury consumer goods sector, which is lower than changes
to their productivity and so drives their price above their value. For the sake of
simplicity, we shall assume that each commodity in the essential consumer
goods sector represents the average value and productivity of commodities in
the sector, and likewise with respect to the luxury consumer goods sector.
Assuming that in the first equation c = 200; v = 300; s = 500, and p = 1000, and
in the second equation x = 2; y = 1.4, and z = 2, we will find that the appropria-
tion of surplus value from the capital of lower composition cancels out the
increase in its rate of surplus value and maintains the same rate of profit,
blocking relative surplus value and wage rises. Therefore if the profit rate of the
given capital in equation 1 is 1 then that remains constant in equation 2, with
the value of the commodities representing essential and luxury consumer
goods having fallen by as much as the value of the mass of wages. But if the
capital in question increases its organic composition in order to raise pro
ductivity, then its rate of profit can only be restored by cutting real wages,

274 Chapter 6
rolonging the working day or intensifying work. If we change the values of z

p
by increasing them and reduce those of y, then once again the profit rate falls.
It also falls if we start with a higher rate of surplus value in the original compo-
sition of the capital of lower technical composition and the aforementioned
variations in productivity remain constant.
In the third equation, if we assume x = 2 and y = 1.3 then the profit rate in the
lower composition capital will fall – from 1 in the first equation to 0.85. This
prevents the lower composition capital from enjoying relative surplus value
and rising wages. It can only totally or partially restore the profit rate by greater
exploitation of labour power and eventually shifting production towards luxu-
ry consumer items. The previous correlations apply here: a fall in x and an in-
crease in y both favour relative surplus value in capital of a lower composition,
whilst a rise in the organic composition hinders it; and an increase in the rate
of surplus value in equation 1 disfavours it in equation 3, providing the afore-
mentioned variations in productivity remain constant.
These simple equations show that, even in the presence of rising productiv-
ity, technological heterogeneity and the operation of extraordinary surplus
value within and between branches/sectors of production can end up block-
ing relative surplus value in capitals of a technically inferior composition. If
those capitals employ the majority of workers in a social formation, then the
value transfers they suffer will lead to a situation where super-exploitation
prevails and relative surplus value is restricted or suppressed. But whilst alge-
braic exercises can forewarn of such possibilities, only the retrospective and
prospective analysis of historical patterns of accumulation can describe the
forms assumed by super-exploitation in dependent countries. One variable of
super-exploitation that such accounts must include is the rise in the value of
labour power related to increased years of schooling and skills levels without a
commensurate increase in its price, which masks a fall in labour power prices
below their value which is nonetheless compatible with a rise in real wages.
Marini’s argument that super-exploitation can spread to central countries is
supported by Marx and Engels’ observations concerning the impact of capital
concentration and centralisation on workers. The extension of super-
exploitation does not eliminate dependent countries’ specific function within
the international division of labour, as some Marxist dependency theorists
suggest, but it does introduce a new level in the technical composition of mo-
nopolies that situates most of the workforce in the central countries below the
average social conditions of global production. The spiralling inequality and
wage stagnation in the United States and Western Europe illustrated by Piketty
(2014) are an expression of this trend.
The high level of capital centralisation and concentration is reflected in
the weakening impact of cycles of foreign capital inflows on dependent

c apitalist development. In studying these cycles, the Marxist theory of de-

pendency highlights the tendency towards medium and long term decapitali-
sation, which is intermediated by inflow-dominated periods that concentrate
and centralise capital (Caputo and Pizarro 1974, Dos Santos 1978a, Martins
2011). This tends to produce a structural increase in the ratio of foreign capi-
tal stock to gdp and transfers, which over the longue durée combines with
inflow volatility to force countries to expand their trade surpluses, through
super-exploitation, except where tourism or emigration provides a major
source of foreign exchange. In analysing peripheral capitalism, Cardoso
stressed the importance of development over dependency. He wagered that
its expansion would be financed by transactional corporations and interna-
tional bodies in service of their own needs, in a manifestation of historical
processes that supposedly got underway in the 1960s (1993a, 112). But con-
crete reality has provided little support for his theory. Instead, the contradic-
tions of dependent and associated development have exposed peripheral
capitalism to financial vulnerabilities and a neoliberal offensive that has
deindustrialised, denationalised, boosted fictitious capital, reduced invest-
ment and produced poor rates of growth. Except during the 2004–2013 com-
modity boom, Latin America has been growing at a slower per capita rate
than the world economy and falling behind per capita income levels in the
world economy’s organic core ever since the 1980s.12
By dramatically increasing foreign capital’s relative stock in Latin America,
the neoliberal model raised remittance levels far above those of capital in-
flows, leading to negative net international capital flows even in periods of ris-
ing inflows such as 2010–2014. This state of affairs made it vital to have a healthy
trade balance, including in periods of currency appreciation such as the latter.
That was only made possible thanks to the commodity price boom from 2004
on, which allowed centre-left or more radical governments in the region to
carry out moderate reforms in an atmosphere of national-popular mobilisa-
tion of a Latin-Americanist bent.13 But the subsequent fall in commodity prices
12 A comparison of per capita income (ppp) levels in Brazil, Argentina and Mexico as a
percentage of those of the United States gives us the following figures: Brazil/US: 1950:
25.5%; 1980: 39.9%; 2003: 24.8%; 2013: 30%; 2017: 25.7%. Argentina/US: 1950: 61.7%; 1980:
52.2%; 2003; 28.7%; 2013: 37.5%; 2017: 34.2%. Mexico/US: 1950: 35%; 1980: 48.9%; 2003:
32.6%; 2013: 33.9%; 2017: 33.5%. Chile/US: 1950: 38.5%; 1980: 30.1%; 2003: 33%; 2013: 42.5%;
and 2017: 41.3% (author’s calculations based on Conference Board 2018).
13 During its 1992–98 cyclical boom, incoming foreign capital exceeded outflows in the form
of remittances of benefits, interests and other services by US$27 billion, while the trade
balance was 89,000 million dollars in the red. During the next boom in foreign capital
inflows (2010–2014), they were outstripped by outflows to the tune of some US$34 billion
and the trade balance was US$136 billion in surplus (Cf. cepalstat 2018).

276 Chapter 6
and downturns in the foreign capital inflow cycle then marked the beginnings
of a new historical phase for Latin America, in which the forces of neoliberal-
ism, its fascist versions and imperialism have taken centre stage, exploiting the
centre-left’s weaknesses and the disarray within the historical bloc that
emerged in the first decade of the new century. The post-1994 expansive Kon-
dratiev’s likely exhaustion by the end of the 2010s, the chronic slowdown in the
expansion of international capital flows and foreign trade, the structural in-
crease in remittances together with the rise in direct investment stock, and the
further concentration and centralisation of capital all point to a sharp rise in
rates of super-exploitation under Latin American dependent capitalism that
will restrict even further the potential for relative surplus value.
One of the drivers of super-exploitation under modern capitalism is the fi-
nancialisation of capital. This produces fictitious capital, which is essentially
supported by the State and public debt expansion in particular. The impact of
fictitious capital production on contemporary capitalism is closely tied to the
techno-scientific revolution and automation, which, in significantly reducing
the mass of value represented by labour power, ensures that the rising rate of
surplus value and economies in labour power are increasingly too low to sus-
tain extraordinary surplus value. It seeks to resolve the contradiction between
increased productivity and value creation in the accumulation of capital. This
hypothesis has also been advanced by Adrián Sotelo Valencia (2010) and Carlos
Eduardo Martins (2011). The creation of fictitious capital, whose basic formula
is M-M`, carries with it the expectation that surplus value can be produced
without labour’s mediation, and its realisation transfers demand and value out
of the sectors producing basic consumer goods and into the luxury consumer
goods sector.
Despite highlighting the linkages between internal and external debt in his
analysis of the crisis of associated development, Marini paid insufficient atten-
tion to the issue of financialisation and its implications for subimperialism.
Nonetheless, in La política de fomento a las exportaciones y el déficit público en
Brasil (The policy of promoting exports and the public deficit in Brazil, 1988)
and El experimento neoliberal en Brasil (The neoliberal experiment in Brazil,
1992), he did draw attention to the existence of a ‘transfer economy’ that makes
it impossible for the Brazilian economy to function effectively as an export
economy. The transfer economy operated on the basis of two key mechanisms:
(a) protectionist regulation of substituting imports, which guaranteed the do-
mestic, foreign or joint industrial bourgeoisie a market share and monopoly
prices; and (b) running up a large internal public debt. This latter mechanism,
originally designed for making external debt interest payments in dollars, be-
came a key component of the local bourgeoisie’s accumulation process and

was internationalised through Cardoso government’s policy of financial liber-

alisation, which was continued by its PT successors.
The transfer economy seriously limited the scope of Brazil’s sub-imperialist
project by reducing investment rates and turning the State into a source of
fictitious capital accumulation and realisation, which partly replaced the pro-
duction and realisation of commodities. In the 1990s the dismantling of the
industrial dependency-related accumulation regime, linked to commercial
and financial liberalisation, placed further constraints on the sub-imperialist
project by overvaluing the currency, deindustrialising, discouraging exporta-
tion and putting fictitious capital production (via the expansion of public
debt) at the core of the transfer economy.
PT governments revived the subimperialist project when they relaunched
industrial policy via the bndes development bank. This gave the project a dif-
ferent character to the one it had assumed in the 1970s/1980s. Back then it was
linked to attempts to use financial dependency to internalise heavy industry
and control nuclear and electronic technologies, as well as being linked to su-
per-exploitation, state terrorism, and the regional ideological borders envi-
sioned by Brazil’s leading theorist of the military dictatorship of big capital,
Golbery do Couto e Silva. In contrast, the PT only promoted certain industrial
sectors, which were less strategically important to global value chains and
were tied to agro-industry, mineral resources and civil construction, encourag-
ing them to internationalise their operations by creating large internal produc-
tive monopolies. This subimperialism exerted most of its commercial and
financial power in South America, with which it achieved impressive trade
surpluses. But its influence stretched also to the Caribbean and Africa, where
its investments generated significant profit remittances. It was associated with
a centrist and multilateral international policy, distancing itself from the US
and moving closer to China (via the brics) and to Bolivarian integrationism,
minus its anti-imperialism. Domestically, its centrism consisted of combining
the neoliberal model with moderate social and democratic reforms. This ap-
proach strengthened the industrial fraction of the bourgeoisie, its national
base and state control of natural resources, recalibrating the hegemony of ficti-
tious financial capital and foreign capital without threatening it. The 2016 coup
put an end to this project in favour of a far purer neoliberal model – one aligned
with the United States and based on intensified super-exploitation, fictitious
financial capital, and surrendering national control over strategic resources
and major value-added chains to foreign capital.
Brazilian sub-imperialism thus represents two possibilities. It can be a
means of achieving an economic surplus and investments in keeping with
the limitations that super-exploitation imposes on the internal market. It can

278 Chapter 6
also be a geopolitical project led by internal fractions of the state techno-

bureaucracy that seek greater autonomy within dependency and combine
with different social forces that assume a variety of historical forms.
As a geopolitical project, subimperialism has now been defeated twice over:
by neoliberalism, which isolated the military governments and dismantled
their plans for technological autonomy within dependency; and by the 2016
coup, which stymied and destroyed the slow revival of state capitalism as a
means of promoting industrial policies and tightening control over strategic
resources. As for realising surpluses and investments, sub-imperialism was
limited by the financialisation of the Brazilian state, the semi-destruction of
the country’s industrial base, and the commodity boom-driven expansion of
the domestic market. However, the political economy of the coup has imposed
a decline in popular consumption and huge cuts to primary public expendi-
ture. This has shifted economic dynamism towards exports and further trans-
nationalised the Brazilian economy, meaning it will probably reorient itself
towards the aggressive conquest of international markets. Attempts to contain
financial capital through interest rate reductions and a highly restrictive fiscal
policy suggest this reorientation will target low-technology sectors, and under
the leadership of international capital move away from the old partnership of
state capitalism and local fractions of the industrial bourgeoisie. Its limits lie in
the association with low added-value sectors and the absence of a national
system of innovation capable of taking Brazil to higher levels within the inter-
national division of labour.
Turning finally to the issue of socialism, we find that neither Ruy Mauro
Marini, nor Theotonio Dos Santos, nor Vânia Bambirra defended this political
choice on the basis of economic stagnation, as Fernando Henrique Cardoso,
José Serra, Bresser Pereira, Guido Mantega and Gabriel Palma have all charged.
They chose socialism as a means of confronting super-exploitation, deepening
inequality, denationalisation, attacks on democracy and the limits that depen-
dency increasingly puts on development in peripheral capitalism, condemn-
ing it to new forms of underdevelopment. Socialism might start with national
revolutions, but it should not limit itself to national spaces or turn to delinking
as a model that exists outside specific and provisional historical conditions.
Instead it should articulate a new geopolitical axis of regional and interconti-
nental power in the world economy, pursuing short to long term wars of posi-
tion and movement against imperialism and its peripheral partners in order to
crack holes in the centre-periphery divide and build a different kind of world
order.

Chapter 7
Latin America: Dependency, Neoliberalism and

New Patterns of Development
From the 1970s onwards, the neoliberal model of development expanded

throughout Latin America. It started with local experiences in Chile, Argentina
and Uruguay before gaining momentum in the 1980s. By the 1990s the model
dominated the region as the Washington Consensus took hold. It then entered
into decline in the first decade of the 21st Century. Nationalism reemerged un-
der new forms, ranging from powerful popular organising and mobilisation to
state capitalism. Nonetheless, periods of decline are drawn out and develop in
fits and starts. It is therefore too soon to call time on this paradigm as long as it
retains strongholds in Mexico, Colombia, Peru and Chile and conditions mac-
roeconomic policy in countries like Brazil, ruled by a Third Way left.1
Neoliberalism reshaped relations of dependency, undid import-substitution
policies and created new relationships between Latin America and the world
economy. It did this in two main stages. The first was in the 1980s, when the
hegemonic power, in the grip of a long-term crisis, drained the world economy
of its surpluses without offering Latin America any reorganised division of la-
bour or pathway to development. The second stage got underway in the early
1990s. As the United States prepared for a fresh expansive cycle it designed a
new project of international insertion for the region, which it condensed into
a set of public policies known as the Washington Consensus. We can also lo-
cate a third stage, of decline, in the first decade of the 2000s. In this period, the
still-dominant neoliberal project was modified in light of (1) China’s ascent in
the world economy; (2) the popular anti-neoliberal consensus driving political
change in Latin America and represented by resurgent popular or state-
bureaucratic nationalisms, and (3) Third Way approaches which adapted the
neoliberal macroeconomy to independent foreign policies, social domestic
1 Note to the English edition: The 2016 coup in Brazil marked a rupture with the experience of
centre-left governments and the end of the New Republic, which since its inception in 1985
had overseen the transition from the military dictatorship of big capital to democracy. A new
regime is now taking shape; it combines political liberalism with fascism in order to limit the
former without formally eliminating it and violating popular sovereignty.

280 Chapter 7
compensatory policies, and industrial policies such as the one Brazil pursued
via the bndes.2
In the first two periods the structuring of Latin America took its cue from
the hegemonic centre. During the 1980s neoliberalism in the region was main-
ly experienced through the effects of US policy on the world economy. Actual
neoliberal experiments took place in isolation in authoritarian fascistic envi-
ronments such as Chile and Argentina, and for the most part a sturdy protec-
tionist structure was maintained to help generate the surpluses needed to
service and pay interest on the external debt. But in the 1990s the regional mac-
roeconomic architecture began to change. Protectionist structures were dis-
solved in favour of trade and financial liberalisation and exchange rate fixing
or appreciation. A new and unsustainable macroeconomic architecture trans-
formed surpluses into deficits. The crises in Mexico (1995), Brazil (1998) and
Argentina (2001) led to fixed (or semi-fixed and strengthened) exchange rates
being replaced by fluctuating rates in the neoliberal political economy. In cri-
ses during the cyclical movements specific to dependent capitalism, when
capital outflows predominate, this serves to encourage extreme currency de-
valuation as a means of restoring trade balances and equilibrium in the balance
of payments. Over the decade fluctuating exchange rates became a dominant
feature both where neoliberal policies prevailed (Mexico, Colombia, Peru) and
where Third Way policies were implemented (Brazil, Chile, U ruguay). At the
2 Note to the English edition: We can also identify a fourth phase of the neoliberal offensive –
one ushered in by the coups in Paraguay (2012) and Brazil (2016); the earlier coup in Hondu-
ras (2008); the electoral defeat of Kircherism in Argentina (2015); the dismantling of UN-
ASUR; the isolation of national-popular experiences in Venezuela, Bolivia and Ecuador, and
the election of Piñera in Chile or Bolsonaro in Brazil. This fourth phase is linked to the desta-
bilisation strategies pursued by US imperialism and local oligarchies, and to the cycles of the
world economy. Key factors include the oil price-cutting policies accompanying OPEC’s ex-
pansion of production; the development of shale gas and the transformation of the US into
an oil power; capital flight; the falling price of raw materials since 2014; the reversal of the
2010–15 cycle of foreign capital inflows to the region, causing a balance-of-payments bottle-
neck in countries such as Venezuela and Argentina; the limitations of centre-left policies in
countries like Brazil, which adopted stabilisation policies at the expense of popular support,
and of national-popular policies like those of Venezuela, which paved the way for large-scale
capital flight by failing to intervene in the financial sector and centralise the exchange rate;
and the limited application of sovereign regional integration policies, as seen in the failure to
to set up the Banco del Sur or create a stabilisation fund or regional anchor currency. The
fourth phase articulates neoliberalism with the mobilisation of a fascist mass base in order to
overthrow democratically elected centre-left governments and legitimise new ones based on
violence against an internal / external enemy (Latin American communism, Bolivarianism,
workers and minorities). The 2018 victory of Manuel Lopez Obrador in Mexico with a large
Congressional majority gives an idea of the extent of political polarisation and the strength
of the Latin American left.

Latin America 281
same time, countries that took a nationalist stance and pursued a new public
policy paradigm were able to increase their autonomy. Such was the case of
Venezuela, Ecuador, Bolivia, Argentina, Paraguay and – until it suffered an oli-
garchical coup at least – Honduras.
In the opening decade of the 21st Century, the turnaround in the terms of
trade thanks to Chinese demand in the world economy was a crucial factor in
sustaining Latin America’s macroeconomic architecture. China became a ma-
jor importer from the region, but its share of foreign investment in Latin Amer-
ica remained derisory until it began to pick up from 2010 on. This has increased
the elasticity of the fluctuating exchange rate and restricted its procyclical ef-
fects, because in periods of capital inflows change of this type, economic growth
tends to be less sustainable, threatening to upset the balance-of-payments
equilibrium by promoting exchange rate appreciation and the return of trade
and current account deficits.
The rise of China as a major financial, productive and commercial centre
reveals a complex world economy that articulates three key patterns of accu-
mulation: central capitalism, dependent capitalism, and Chinese-led accumu-
lation with little or no dispossession, in which the technological dynamic is
linked to the population’s peripheral-type consumption patterns. Latin Amer-
ica’s relationship with the Chinese economy presents serious contradictions: it
temporarily reverses the decline in the terms of trade between basic and man-
ufactured products; deepens export primarisation, and offers a window of op-
portunity harbouring both risk and potential that will probably remain open at
least until the end of this new expansive Kondratiev phase in the world econ-
omy. But whether this opportunity for catch-up is grasped, or whether it disap-
pears from view with a resumption of the decline that so clearly set in during
the 1980s and 1990s, depends on the State and public policy.
This chapter seeks to get the measure of the impact on Latin American
development of the new types of articulation with the world economy intro-
duced by neoliberalism. Whereas regional development between 1950 and
1970 produced both economic growth and inequality, the neoliberal period
of 1980–2002, which coincided with the Kondratiev B-phase in the region,3
dismantled the architecture of growth and deepened peripheralisation and
inequality. The outcome was poor economic growth; denationalisation and
destruction of the productive apparatus’ higher value-added segments; deep-
ening super-exploitation, and environmental decay. The post-2003 period has
3 In keeping with dependency, Latin America suffers a certain delay in articulating itself with
the cyclical movements coming out of the hegemonic centre. The Kondratiev B-phase began
taking hold in Latin America in 1980, exhausting itself in the region as a whole by 2002.

282 Chapter 7
since r estored growth in the region to world economy levels, thus stalling its
drift towards peripherisation. But this process rests on shaky foundations,
namely the reversal of declining terms of trade, primarised exports and the
continuation of fluctuating exchange rates in many countries. Furthermore,
the financial sector has retained the foothold it secured during the years of
recession and held down investment rate growth in Latin America as a
whole, with the latter remaining well below 1970s levels despite national sav-
ing increasing at a faster rate than in the 1990s and the expansion of the
communications, transport and storage sectors. Regional economic dynam-
ics are now linked to the internal market, thus favouring those countries that
promoted it via major social reforms and state investment; and to the Asian
market, boosting the region’s Pacific coast. The coming decades will un-
doubtedly test the sturdiness of the foundations of Latin America’s econom-
ic growth and see a conflict between an expanding internal market and
increasing investment rates, and the limits of a political system linked to the
power of a monopolistic financial bourgeoisie that produces luxury goods
and/or exports commodities.
We shall now describe the new stage of dependency, before then sketching
out what a sovereign version of international articulation might look like.
1 New Patterns of Dependency in Latin America
1.1 Neoliberalism’s Regional Consolidation

Two key factors helped neoliberalism consolidate itself in Latin America: the
defeat of the popular movements of the 1960s and 1970s by fascist dictatorships
and redemocratisation processes articulated with US regional hegemony; and
the reworking of US policy towards the region since it entered a hegemonic
crisis.
In Chapter 4 we saw that from the 1930s to the 1960s the United States ex-
ercised virtuous leadership over the world economy. The decentralisation
produced by its current account surpluses and its multinationals’ capital
exports helped the world economy grow at very high growth rates over this
period. At the same time, the creation and reinvention of a whole set of inter-
national institutions by the US represented a progressive victory for humani-
ty. But by the 1970s it had stopped fuelling the world economy and become a
brake on its development. The institutions it had set up in the 1940s entered a
crisis of international legitimacy. This manifested itself on various levels: the
breakup of the Bretton Woods system that based global monetary standards
on gold-dollar parity; the crisis of legitimacy afflicting UN institutions, whose

Latin America 283
decision-making processes were by then seen more as a tool of the big powers
than a guarantee of self-determination, and the crisis of global models of
development.
As we saw, hegemonic crises begin with the economy. The United States was
compelled by its growing current account deficits to start capturing interna-
tional savings instead of providing liquidity to the world economy. These defi-
cits first appeared in 1971–1972, and were kept under control until 1976, but
from then on imposed themselves in systematic fashion. This had a devastat-
ing effect on peripheral patterns of development. Latin America was hit espe-
cially hard as it had run major trade deficits during the 1970s, relying on the
availability of international capital to finance its ever deepening current ac-
count shortfalls.
The United States responded to its loss of international competitiveness by
strengthening the dollar and using its regional power to delay its decline. Neo-
liberalism, meanwhile, provided the ideological cover it needed to launch an
offensive throughout Latin America. This had three aims: to reduce its trade
deficits with the world through trade surpluses with Latin America; to create
the conditions for US investors to make money and incorporate assets through
speculation and bargain, and to minimise restrictions on the circulation of
capital and goods, thereby enabling it to reduce production costs and increase
the competitiveness of its enterprises by reorganising the regional division of
labour.
The difficulties it had in consolidating itself meant that only in the 1990s did
this US offensive finally manage to take hold across the whole of Latin Ameri-
ca and dismantle the protectionist structures previously enacted by import-
substitution policies. The resource drain imposed on Latin America in the
1980s meant resources could only be financed by obtaining significant trade
surpluses. This created a bond between the neoliberal experiment and author-
itarian regimes, as the latter encouraged labour super-exploitation as a means
of offsetting the negative effect of trade liberalisation on their ability to achieve
the balances needed to finance their current account deficits, which along
with their external debts were deepening. This neoliberal process found fullest
expression in Chile, where fascism brutally imposed super-exploitation on
workers. But Chile was a comparatively isolated case, and the Argentine and
Uruguayan dictatorships failed to survive the recession of the 1980s.
Despite being boosted by the key role it played in redemocratising the
Southern Cone, US leadership was seriously undermined in the 1980s by its
failure to offer a programme for development that would expand the Latin
American economy just as it had in the 1950s and 1960s, albeit with major so-
cial contradictions. Along with the crisis and dissolution of the dictatorships,

284 Chapter 7
this absence of a hegemonic project led Latin American countries to seek

alternatives and develop closer, more collaborative relationships with one an-
other. Thus attempts were made with Cuba’s active support to collectively re-
negotiate the external debt via the Latin American and the Caribbean
Economic System (sela) and the Cartagena Group. In addition, Presidents
Sarney (Brazil) and Alfonsin (Argentina) laid down the framework of an eco-
nomic integration agreement that would prioritise strategic sectors by inte-
grating the capital goods sector, supporting scientific and nuclear cooperation,
and seeking out markets for wheat production.
For much of the 1980s the United States was not in any position to reverse
this trend, and only managed to regain the initiative by changing its public
policies. When the Reagan administration tried to tackle its current account
deficits through strong dollar diplomacy and a turn towards neoliberal eco-
nomic policies, the national debt and trade balance deficits skyrocketed. This
laid bare the limits of such an approach. The potentially explosive impact of
the national debt and current account deficits on US financial equilibrium be-
came clearer, and steps were taken to devalue the dollar, cut interest rates, and
extend and deepen neoliberal influence throughout Latin America and the Ca-
ribbean, including under President Bush. Falling interest rates, the 1990–1991
economic crisis and the need to plough savings into productive investment all
briefly helped to reduce US current account deficits from around US$160 bil-
lion in 1987 to US$48 billion in 1992. As capital became available, it had to be
internationalised for the US to reorganise its competitive insertion in the
world economy. It renegotiated the Latin American external debt, promoted
trade and tariff liberalisation in the region, and encouraged strengthening cur-
rencies and tying them to the dollar so that international prices would level
internal prices in the region. It also launched the Enterprise for the Americas
Initiative and negotiated nafta. Later, the Clinton government would cut in-
terest rates, devalue the dollar, and further integrate the region on overwhelm-
ingly neo-liberal terms. Thus the stage was set for Latin America to replace the
trade surpluses of the 1980s, now absorbed by external debt interest payments,
with trade deficits that would deepen throughout the 1990s. A major neoliberal
assault gathered force across Latin America, with the Washington Consensus
its chief ideological reference point.
The Washington Consensus came out of the Reagan-era convergence
between the positions held by the senior bureaucracies at US government eco-
nomic agencies, the Federal Reserve Board, and Washington-based interna-
tional financial agencies on the one side, and economic consultants and
members of Congress on the other. In practice, its proposals were only applied
to Latin America at the end of the 1980s. According to Williamson (1990), the

Latin America 285
Washington Consensus was a development plan based on a thorough rework-

ing of US public policy towards the region. Ten key policy measures lay at its
core: fiscal discipline; making health and education a budgetary priority; tax
reform; setting positive interest rates; appreciating and fixing exchange rates to
make them competitive; liberalising trade policy by dismantling tariff and
para-tariff barriers; opening up to foreign investment; privatisation of state en-
terprises; broad deregulation, and protection of property rights.
This programme was applied extensively, even with local variations such as
Brazil’s sky-high interest rates and the overvalued exchange rates, which un-
dercut most Latin American countries’ competitiveness. But these variations
never departed from the Washington Consensus and received full support
from its backers. Its impact exposed the full extent of the dependency phe-
nomenon in the region and the stake held in it by local ruling classes. Intra-
country tariff reductions, which had been applied on a gradual, stop-and-go
basis since 1960 through the Latin American Free Trade Association (lafta)
and the Latin American Integration Association (laia), were now applied far
more intensively. Latin American integration was adapted and subordinated to
the new hegemonic project.
The Washington Consensus promised to get Latin American economic de-
velopment back on track by boosting competitiveness and reducing poverty.
Economic growth rates and foreign capital inflows would be restored, and in-
creased competition would raise national productivity as economies special-
ised in sectors where they enjoyed a comparative advantage and let go of those
with relatively higher production costs. The results, however, were extremely
disappointing. Per capita gdp growth was not sustained, leading to crisis and
stagnation between 1998 and 2003. Currency overvaluation had fuelled dreams
of greater consumption and working class purchasing power, but turned into a
nightmare of falling wages, deepening poverty and unemployment. At the
same time, rising external debts, denationalisation and the destruction of the
region’s highest value-added segments all contributed to a decline in the terms
of trade.
At the end of the 1990s US hegemony was again plunged into a far-reaching
crisis of legitimacy that engulfed the local bourgeoisies under its wing. This
had serious implications for a dependency historically rooted in a ‘compro-
mise situation’ that articulates foreign capital with national capital internally.
Such capital is dependent from birth, and uses the State as a tool for negotiat-
ing and reconciling different interests. But in Latin America neoliberalism had
rendered the very foundations of that compromise obsolete. It had destroyed
national bourgeoisies’ productive structures across the board via denationali-
sation and restricted the State’s powers of initiative and managerial function

286 Chapter 7
by subordinating it to the ‘cosmopolitan’ rules governing the international cir-

culation of capital and goods. As a result, the ‘compromise situation’ that had
established dependency as a historical necessity went into deep crisis. Local
bourgeoisies lost much of their autonomy and capacity to lead the develop-
ment of the productive forces. Their power to develop the productive forces,
including through super-exploitation, had underpinned the control of the
State by national bourgeois factions. The political crisis of such groups was a
sign this relationship had been severed. Their crisis drove Latin American poli-
tics in a leftward direction, most notably during the cyclical period of foreign
capital outflows that lasted from 1999 until 2009.4 Bourgeois power was rele-
gitimised either by the centre-left in countries where Third Way policies were
applied (Brazil, Uruguay and Chile especially) or by a more moderate national-
ism rooted in party and state bureaucracies (Argentina). With its turn towards
China in the 2000s, Latin American foreign trade played a crucial role in this
process by temporarily improving the terms of trade and conditions for eco-
nomic growth, restoring the Kondratiev A-phase throughout the region.
In the next section we outline the nature of the economic cycles articulated
by neoliberalism since it first encroached upon the region in the 1970s, before
moving on to an empirical analysis of the forms that its expansion has taken
since the 1990s.
2 Neoliberalism and the Economic Cycle in Latin America
As neoliberalism took its place as the hegemonic ideology, we find that Latin
America became articulated with the world economy in two main stages: fi-
nancialisation, which began in the late 1970s and whose influence waned in
the first decade of the 2000s; and productive accumulation, which from that
point on established itself more globally, although some countries had already
4 Ever since the Zapatista rebellion broke out in the mid-1990s neoliberalism has been on a
trajectory of decline in Latin America. That decline manifested itself more clearly towards
the end of the decade through a series of political defeats. The rise of Hugo Chávez in Vene-
zuela, Lula in Brazil, Rafael Correa in Ecuador, Evo Morales in Bolivia, Daniel Ortega in Nica-
ragua, Lugo in Paraguay, José Mujica in Uruguay, the Kirchners in Argentina, and Ollanta
Humala in Peru, together with the PRI’s defeat in Mexico and the quasi-election of López
Obrador, are all part of the same crisis of the neoliberal paradigm and the search for alterna-
tives. In the Chilean case, the Christian Democrats attempted to regain ground at the ex-
pense of their Socialist Party partners in the Concertación through the candidacy of Eduardo
Frei, who ended his term in office with very low ratings. This opened the way for the victory
of the right in the 2010 elections.

Latin America 287
entered this stage in the 1990s. Such was the case of Chile and Mexico – the
latter following the crisis of 1994–1995.
The first moment of financial accumulation lasted from the late 1970s until
the 1980s, when rising US interest rates led to capital outflows in their different
guises outstripping capital account inflows. To part-finance these outflows the
trade balance had to be restored. Its second moment came at the outset of the
1990s, when international interest rate cuts, external debt renegotiation and
continued positive trade surpluses up until 1991 provided the basis for building
up international reserves that would underwrite a policy of trade deficits and
attracting foreign capital via high interest rates and national currency appre-
ciation. The biggest macroeconomic contradiction faced by financialisation
during its second moment in Latin America was between the explosion of na-
tional debt securities and private sector financial instruments, and national
public and private sector reserves and their ability to pay (Dos Santos 1995b,
1995c).
Financialisation caused a sharp decline in the higher value-added segments
developed by import-substitution policies in the region, such as capital goods.
Eventually it created a need to generate large trade surpluses and led to whole
swathes of national public and private sectors being transferred into the hands
of international capital, helping to finance the negative current account bal-
ance and public and private debts once the cycle of financial investment was
exhausted.
The productive accumulation phase began as financialisation displayed its
first signs of exhaustion in the second half of the 1990s, notably in Mexico. Dur-
ing this period neoliberal policies were overhauled and replaced fixed ex-
change rates with fluctuating ones as the cornerstone of exchange rate policy.
Four factors eased the crisis caused by the cycle of foreign capital outflows in
between 1999 and 2009 and allowed for a relatively smooth and accelerated
transition to the Kondratiev A-phase: (a) the reversal of declining terms of
trade thanks to Chinese demand for basic and primary products; (b) the for-
eign currency inflows resulting from mass Latin American emigration to the
United States and Europe in the 1990s and 2000s; (c) Third Way policies that
exploited the favourable international conjuncture to attack extreme poverty,
stimulating economic expansion, and (d) nationalist income and property dis-
tribution policies or partial destruction of fictitious capital, which strongly
boosted domestic demand.
The first two factors allowed relative macroeconomic stability to coexist
with fluctuating exchange rates by taking maximum advantage of their coun-
tercyclical results in the period of foreign capital outflows (1999–2009). The
terms of trade rose to their highest levels since 1950, sustaining very positive

288 Chapter 7
trade balances, and the absolute value of emigrant remittances tripled be-
tween 1998 and 2006 from 32% to 67% of the revenue deficit, contributing to
current transaction surpluses between 2003 and 2007 on a scale unseen since
1950 or 1984, when the current account balance was marginally positive.5 This
made it possible to accumulate reserves and reduce external debt.
Improved terms of trade and domestic demand became the main drivers of
renewed economic growth in the region. The nationalisms that emerged in this
period in tandem with mass mobilisations designed more aggressive policies to
stimulate domestic demand and confront the prerogatives of capital, exploit-
ing the deep-seated crisis of oligarchical legitimacy. Countries like Venezuela,
Bolivia and Ecuador transformed the bourgeois democratic political model,
introducing direct democratic mechanisms and sustained anti-oligarchic pub-
lic policies by giving institutional support to popular mobilisation. Although
these processes developed amidst raging social and political conflicts, the oli-
garchies and big capital had lost so much moral authority that they could not at
the time end them through civil-military coups.6 For that, they would have to
wait for said processes to lose legitimacy, and so they used ideological, eco-
nomic and political terrorism in conspiring towards that goal.
Latin America’s post-2003 economic expansion saw it match world econo-
my per capita growth for the first time since 1980.7 The geopolitical axis of
growth shifted towards China and the Pacific as that linked to the United States
lost its dynamism. At the same time, it is unclear whether the results of this
shift are at all sustainable. The process has seen a major reprimarisation of
Latin American imports. This is not, however, a consequence of Chinese de-
mand per se, but rather of how our dependent productive structures relate to
it. Around 70% of Chinese imports are concentrated in the medium and high-
tech manufactured products segment (Figure 7.1). To get a proper foothold in
that market our countries need to invest in increasing the added value of our
5 See CEPAL (2009c), available at http://www.eclac.cl/deype/cuaderno37/index.htm.

6 In this sense the coup d’etat against President Zelaya, who took Honduras into ALBA, repre-
sented the right’s first success. But it happened in a country which had not made the institu-
tional changes needed to entrench participative democracy. The Supreme Court, Congress
and army all played a key role in the coup.
7 Latin American GDP per capita grew by 3.3% between 2003 and 2008, equivalent to that of
the world economy. Argentina (7.3%) and Venezuela (5.4%) stand out. Brazil (2.5%) and,
above all, Mexico (1.9%) performed far more modestly, while Peru (5.6%) and Chile (3.6%)
obtained positive rates. Geopolitically, the Latin American growth axis clearly shifted to-
wards the Pacific and China route to the detriment of the US one, and towards countries that
promoted domestic demand: either by destroying fictitious capital, as Argentina did when it
slashed the value of state private sector debt; or by nationalising the private sector and radi-
cally redistributing income, as Venezuela did.

Latin America 289
100
90
80
70
60
50 Primary
40 Manufactured
30
20
10
0
2000
2001
2002
2007
2008
1990
1991
1992
2003
2009
1993
1997
1998
1994
1995
1996
1999
2004
2005
2006
Figure 7.1 Chinese imports: type of goods
Source: China Statistical Yearbook 2010 (National Bureau of China
2011)
exports. That means higher internal rates of investment, a break with

super-exploitation, and regional or semi-continental scales suited to building
powerful systems of innovation that can offer the region a sustainable means
of international insertion. China itself and the brics could be strategic allies
in this process, deepening the shift towards a multipolar world economy and
the decentralisation of technological monopolies.
On the other hand, if dependent bourgeoisies remain in control of Latin
American states then the dynamic nature of Chinese demand will only exacer-
bate the primarisation of our export pattern and severely restrict industrial
and techno-scientific development.
The cyclical growth period that got underway in Latin America in the 2010s
is likely to display major contradictions. It was first set to establish itself in
2007, but was interrupted by the global crisis of 2008–2009 before resuming in
2010. It has tended to recreate serious financial disequilibria in the balance of
payments. Furthermore, the return of foreign capital in the form of dollar in-
flows will probably intensify, negatively affecting Latin America’s current ac-
count. The fluctuating exchange rate depreciates during the crisis, reflecting
foreign capital flight and the high demand for dollars in order to finance cur-
rent account deficit-induced debt. But during the period of inflows it does the
opposite, increasing profit remittances and international services as a propor-
tion of the deficit and restricting Latin American exports at the same time as
overvaluing local currencies, with a negative impact on the trade balance and

290 Chapter 7
current account. Neoliberal or Third Way policies based on a fluctuating ex-

change rate favour foreign competition, currency appreciation and current ac-
count deficits, thus making the regional balance-of-payments equilibrium de-
pendent on incoming foreign capital. There is a risk of going back to the
dynamics of the external debt, and it looks like the region’s export offer will
continue being reprimarised as trade with China grows. It will be hard for this
reprimarisation to replicate the positive terms of trade of 2002–2008 because
there will probably be a substantial increase in Chinese investment in Latin
America, which will equalise Chinese demand and investment in the region.8
This will contain upward pressure on export prices and changes to the terms of
trade in Latin America’s favour.9
A ten-year crisis, if it hits the region at the end of the 2010s will have serious
social, economic and political implications. It will mark the beginning of the
Kondratiev B-phase and affect global demand for international capital flows,
public debt, profit rates and interest levels.10 There could then be high costs at-
tached to the ongoing reprimarisation of our economies’ export and repeat in a
new stage the path of decay and peripherization of Argentina and Uruguay –
once important primary exporting centers – a process that began in the first half
of the 20th century and continued into the second as they failed to transform
themselves into major centres of industrial or techno-scientific development.11
8 According to the Brazilian press, Chinese investment in Brazil, previously unremarkable,

increased by 14,000% in 2010 from US$82 million to US$12 billion. This made China the
country’s main foreign investor. Its investments are concentrated in commodity produc-
tion and infrastructure, with priority given to mining, oil, steel, agriculture, energy trans-
mission and transport.
9 In 2009 China surged ahead to become the world’s leading exporter of goods, accounting
for 10% of merchandise exports and at the same time 4.4% of foreign direct investment
flows. This was notably higher than the mere 1% it had represented up until 2007 (CEPAL
2009a, UNCTAD 2010). China accounted for 11.6% of direct investment flows to Latin
America in 2009, but 95% of these went to financial centres in the Cayman Islands and
British Virgin Islands, with other Latin American and Caribbean countries representing
just 0.3% of total capital flows. ECLAC points out however that this picture changed in
2010, when China signed a series of contracts representing large-scale investment in the
region.
10 During the 1939–1973 Kondratiev, the region went through two cyclical periods dominat-
ed by foreign capital inflows: 1956–1960 and 1968–1981. If that pattern repeats itself then
inflows should predominate during two cycles of the expansive phase of the current Kon-
dratiev: 1991–1998 and 2010-?. We say this, however, only as an indication of future trends
and possibilities.
11 Argentina achieved a per capita expansion of 0.6% between 1914 and 1951 and just 1.1%
between 1914 and 1980, in contrast with 2.3% between 1890 and 1913. Its per capita GDP as

Latin America 291
Deteriorating terms of trade could combine with serious balance-of-payments

disequilibria reflected in high current account deficits and capital outflows.12
This is all made more likely by the increased intensity and frequency of cyclical
oscillations in global capital flows in the 1990s/2000s compared to the 1970s and
1980s.13
In order to create a sustainable basis for the future development and
international insertion of our regions, the superprofits accumulated by the
export sector should be invested in building productive, food, energy,
techno-scientific, environmental and cultural sovereignty. The pattern of in-
ternational insertion of medium and high technology segments could thus
be progressively redefined. To achieve this, however, the State would need to
play a very active role in regulating social, economic, and political life. It
would need to democratise itself radically enough to secure a popular sup-
port base, and fashion sovereign international policies with a view to build-
ing strategic alliances in a world of powerful multipolar tendencies. It would
also need to invest heavily in education, health, science and technology and
culture; overcome the limits of truncated industrialisation and technological
dependence; impose environmental standards on development, and ensure
that land, transport and infrastructure are geared towards the internal mar-
ket. Regional integration would be a crucial element in this process as it
could establish Latin America as a leading centre of global accumulation.
The transition towards a multipolar world and China and East Asia’s emer-
gence in recent decades as the world economy’s most dynamic axes suggest
a proportion of that of the world economy fell from 246% in 1913 to 182% in 1980, and
142% in 2000, where it remained in 2008. See the Maddison Database at the Groningen
Growth and Development Center, available at http://www.ggdc.net/MADDISON/oriin
dex.htm.
12 After five years of surpluses from 2003 to 2007, the current transactions balance went into
the red again in 2008, 2009 and 2010. Brazil’s deficit alone stood at US$47 billion by 2010,
almost doubling the 2009 figure of US$24 billion. In the same year it hit US$6 billion in
Colombia; US$4 billion in Mexico, and US$2 billion in Peru. For their part, Chile, Argen-
tina and Venezuela’s balances fell sharply in 2010 compared to 2009. See CEPAL (2009a)
and central bank reports.
13 Between 1970 and 1981 international capital flows expanded at a rate of 16% per annum.
Between 1981 and 1985 they contracted, falling in 1983 to 72% of their previous highest
level. Between 1985 and 1990 they rose by 30% p.a. before contracting again from 1990 to
1992, dropping to 74% of their previous high in 1991. Between 1992 and 2000 they expand-
ed by 30% p.a. before falling to 40% of their previous high in 2003 during the 2000–2005
period of contraction. Between 2005 and 2007 they expanded by 45% p.a., falling to 53%
of 2007 levels in 2009. See UNCTAD, Unctadstat (s.d.), available at http://unctadstat.unc
tad.org.

292 Chapter 7
the hinterland will play a big role in the way the world-system is organised
in the 21st Century. The growing extent to which the brics are coordinating
international policy and addressing strategic issues at their annual summits –
creating alternatives to the dollar, democratising international organisations,
support for peaceful and diplomatic solutions, reducing international trade
asymmetries – suggest that the multipolar tendency is here to stay and that
scientific-technological cooperation is increasing as a result. If Brazil plays a
leading role in this process, Latin America could become a major centre of
accumulation in the world economy. However, that would require both de-
cisive State action and popular participation, because as we saw earlier,
transnational corporations still tend to centralise R&D investment in their
national parent companies.14
Sovereign regional integration can only advance if we overcome the organ-
isational limits placed on it by local oligarchies wedded to dependency, neolib-
eralism and sub-imperialism. Their relationship with dependency is most
acutely expressed by their adherence to neoliberalism and subordination to
the hegemonic decline of the United States. This has produced a hegemonic
financial sector and a revival of the primary-export and service sectors linked
to it at the expense of manufacturing. Here, regional integration is seen as de-
viating from integration into the world market. Nonetheless, the industrial sec-
tor still has some power in Latin America and particularly in countries like
Brazil or Mexico, even if in the latter case it is essentially integrated with the
United States. The resumption of the expansive Kondratiev phase and rising
profit rates have led industrial bourgeoisies to use the regional space to assert
their national power, thus limiting the scope and potential for sovereignty and
supranationality in regional integration processes. This is most notable in Bra-
zil. The Brazilian industrial bourgeoisie accumulates large trade surpluses with
the rest of South America. Throughout the region it relies on bndes to support
its activities (limiting the Banco del Sur’s reach) and maximises revenues
through the profit it obtains from financial operations. For sovereign regional
integration to develop in a sustainable fashion inequality and asymmetries
must be reduced in order to give it suitably solid macroeconomic foundations.
This represents a formidable challenge for the emergent left and centre-left in
the region.
Having presented our main theses regarding Latin America’s developmental
trajectory under neoliberalism, we shall now turn to its empirical foundations.
14 See chapter 3, footnote 6.

Latin America 293
3 The Balance of Payments and Limits to Growth
3.1 Historical Patterns of Trade Deficits, Current Transactions and Crisis

What limits are imposed on Latin America by macroeconomic policies de-
signed to delink economic growth from trade surpluses?
We saw that for Theotonio Dos Santos, Orlando Caputo and Ruy Mauro
Marini, foreign capital only increases reinvestment in a region if forced to by
the pressure of competition. Otherwise it prefers to maximise its profit rates
and be repatriated, benefitting its non-resident owners. Because dependent
economic structures are uncompetitive and subordinated to foreign capital,
their foreign capital flows tend to be negative. In their analysis of Latin Amer-
ica’s balance-of-payments structure during the postwar boom, Dos Santos
(1970, 1972, 1978a) and Caputo (1973) both see a tendency towards wide current
account deficits owing to negative balances on capital services (profit remit-
tances, interests, technical services etc.) and, to a lesser extent, on current ser-
vices (transport, insurance and travel). They put forward two ways to offset the
negative weight of capital and current services: (a) via capital inflows, through
a positive capital account; or (b) via trade surpluses.
The first of these, capital inflows, deepens the negative balance of payments
dialectically as it leads to new capital and current service payments. The mac-
roeconomic effects of these payments are expressed in restrictions on new
capital inflows and the depreciation of earlier inflows in the form of loans or
productive investments. Foreign capital does not end up equalising the nega-
tive current account balance but financing it at the expense of extracting more
surpluses in the mid to long term.
Trade surpluses, on the other hand, represent a stable but limited way of
offsetting the services deficit. Stable, because they do not imply subsequent
capital flows in the opposite direction. Limited, because of the role played by
financial movements, whose importance grows in the measure that capital
monopolisation advances, and because dependent countries’ surpluses are
largely a product of bogus and uncompetitive mechanisms such as labour
super-exploitation.
In Latin America, trade surpluses have proved a crucial means of lifting
pressure on the balance of payments and maintaining a macroeconomic equi-
librium that however precarious has ensured healthy economic growth rates,
thus making external capital accumulation viable. A brief history of Latin
America’s balance of payments shows how key they are to sustaining econom-
ic growth, as regional economic crises have always been preceded by the trade
surplus shrinking or disappearing, meaning it cannot be used to finance

294 Chapter 7
technological dependency and capital or current services in the balance of

payments (Maddison 1995, Hofman 1998).
Between 1900 and 1929, the progressive exhaustion of the Latin American
trade surplus during the accelerated growth period of 1906–1912 led to the
economic crisis of 1913–1919. The surplus then declined yet further during the
expansion of 1920–1929, leading to the crisis of 1929–1933. The only way to over-
come this crisis was by broadly institutionalising substitutive industrialization,
which used export earnings to pay for industrial imports. The suspension of
external debt servicing payments helped make this possible.
Between 1946 and 1980, the foreign capital returning to Latin America ar-
ticulated itself to the protectionist structure created by import substitution.
Combined with trade surpluses, this raised economic growth rates over the
period as a whole by serving as a dual means of financing the balance of pay-
ments. Economic crises in their various phases always followed periods when
trade surpluses had dried up and turned into trade deficits. Thus the crisis of
1952 was preceded by the regional deficit of 1951; the crisis of 1962–1967 was
preceded by the exhaustion of the surplus between 1957 and 1961, and the ac-
cumulation of huge trade deficits between 1970 and 1981 gave way to the big
crisis of 1978–1990, when capital account earnings fell dramatically and the
burden of financial dependency suddenly became a lot heavier.
Between 1991 and 1994 Latin America was able to build up monetary re-
serves thanks to a combination of lower global interest rates, renegotiated ex-
ternal debt, the return of incoming capital flows, and positive trade balances
throughout the 1980s up until 1991. A neoliberal macroeconomic architecture
based on fixed or semi-fixed exchange rate regimes and currency appreciation
was imposed on the region, which then ran trade deficits successively from
1992 until 1999. Between 1992 and 1994, the trade deficit jumped from 1.2% to
1.8% and the current account deficit from 2.7% to 3.3% of regional gdp. As a
result, crises broke out in Mexico and Argentina in 1995 and regional gdp fell
by 1%. In 1996 the trade and current account deficit narrowed to 0.7% and
2.2% respectively, but gradually recovered to 2.7% and 4.5% in 1998, when the
region entered a critical juncture which saw the crisis combine in a single
trend with economic stagnation in Brazil, Argentina, Mexico and Chile (Cepal
2002a).
This period was followed by a major economic crisis lasting from 1999 to
2003, which benefitted the left across Latin America. 2002 saw the return of
large trade surpluses, and current transactions followed suit from 2003 to 2007.
The regional trade surplus reached 1.2% in 2002; 2.3% in 2003; 2.7% in 2004;
2.9% in 2005; 2.9% in 2006; 1.8% in 2007; and 1.1% in 2008, when the current

Latin America 295
transactions balance once again went into deficit..15 The 2003–2007 current
transactions surplus helped improve terms of trade and massively expand cur-
rent transfers. Such a state of affairs was however only temporary. The terms of
trade rose from an index of 95.9 in 2001 to to 119.2 in 2008, but with the global
crisis in 2009 they declined to 113.2. Such a long expansive trajectory is unlikely
to ever be repeated. Current transfers expanded in the context of the socio-
economic crisis that got underway in the 1980s, triggering large-scale Latin
American emigration to the central countries. Thus they grew by 18% p.a. in
the 1980s, 8.3% p.a. in the 1990s, and 21% p.a. from 2000 to 2008.16 But from
2006 onwards the pace of this increase slackened and even went into negative
figures under the combined impact of anti-immigration policies in the core,
rising unemployment in the US and Europe, and improved social conditions in
Latin America.
Although the US$130 billion-odd current transaction surplus achieved in
2003–2007 was crucial to the ability of countries to build up reserves and re-
duce external debt, it was a one-off and its determining factors have deterio-
rated since entering the 2010s. The global crisis has eaten into the trade surplus,
the terms of trade have declined and lost dynamism due to Chinese invest-
ment, and migrant remittances have been hit by unemployment in the core – a
enduring legacy of the crisis despite renewed US economic growth. In addi-
tion, payments on income (profit remittances and interest payments) expand-
ed notably by 8.4% p.a. between 1999 and 2008, far outstripping gdp growth
rates over the last thirty years. This trend looks set to continue in keeping with
the new wave of international investment that has entered the region since
2010.17
Over the coming decade it is therefore highly likely that should the region
be dominated by moderate governments applying a left-wing version of the
Third Way approach that rests on core neoliberal political-economic princi-
ples such as fluctuating exchange rates, then current account deficits will wid-
en considerably, financed by large inflows of foreign capital. This will lead
15 Available at www.eclac.org.
16 In their peak year of 2007, current transfers were concentrated in Mexico (39.4%), Guate-
mala (7.4%), Brazil (6.2%) and El Salvador (5.6%).
17 Profit remittances and interest payments expanded by 6.3% p.a. between 1980 and 2008.
They expanded by 6.2% p.a. during the period of capital outflows (1980–1990); 6% p.a.
between 1991 and 1998, when inflows again predominated, and 9% p.a. between 1999 and
2006, when outflows were once again higher. Latin American GDP expanded by 2.7% p.a.
between 1980 and 2008, 3.3% p.a in 1994–2008, and 4.3% in 2003–2008 – its golden age in
terms of growth. See CEPAL (2009c) and Angus Maddison’s data, available at http://www
.ggdc.net/MADDISON/oriindex.htm (last accessed December 2017).

296 Chapter 7
d ialectically to a deeper capital services deficit. A financial trap could be laid in

the region’s external accounts and sprung during the transition to the recessive
and tough-to-absorb Kondratiev B-phase, unleashing a multidimensional cri-
sis that is simultaneously economic, political, social and ideological.
3.2 Low Economic Growth and Cycles

We noted that under the neoliberal model, Latin America has experienced ex-
tremely low growth characterised by sharp swings. This has continued to be
the case even after entering the new Kondratiev A-phase. Although the region-
al economy has grown faster than during the B-phase, in overall terms it re-
mains below average growth across the world economy.
We can divide Latin America’s participation in the post-1994 Kondratiev
into two moments. During the first moment (1994–2002) the whole region was
under the hegemony of financialisation with the exception of Chile, which by
the late 1980s had entered the productive accumulation phase, and Mexico,
which did likewise after the 1995 crisis. Over this period Latin America benefit-
ted very little from accelerated world growth. During the second moment
(2003–2009) the political crisis and the rise of the left and centre-left restricted
the financial sector’s influence over regional accumulation processes and redi-
rected the latter towards the productive sector. This was possible also thanks to
an exceptionally favourable international conjuncture in which China became
one of Latin America’s biggest trading partners. In 1994–2002, the regional per
capita growth rate was only 0.8%, but between 2003 and 2008 it stood at 3.3%,
equalling the world economy average. It is worth noting that between 1994 and
1998 Latin America matched per capita gdp growth in the world economy
(1.9% p.a.), but the unsustainable nature of its macroeconomic architecture
meant the Asian crisis of 1998 hit the region much harder than it did the world
economy, which remained unaffected throughout and increased its rate of ex-
pansion to 2.1% in 1994–2002. Crucially, positive balances of payments be-
tween 2003 and 2007 enabled Latin America to survive the 2009 crisis without
losing touch with global growth rates. These results became articulated with
both the global factors positively impacting upon the balance of current trans-
actions, which we discussed above, and the new cyclical period of capital in-
flows that began to influence our balance of payments in 2010. However, it is
highly unlikely that these favourable circumstances could survive a new world
economic crisis in the mid-2010s.
Foreign capital and the world market played a crucial role in the Latin
American crisis of 1999–2002. During the 1990s rising capital flows combined
with appreciated or fluctuating exchange rates and the absence of trade barri-
er protection to provoke major balance-of-payments desequilibriums. No

Latin America 297
i nternational financing was made available when this occurred, as seen when
the US and international agencies backed out of managing the Argentine cri-
sis. Ultimately, these financing limits were set not only by the needs of US capi-
tal, for which reason the hegemon had given up strengthening multilateral
economic institutions, but also by the spread of imbalances throughout Latin
America under neoliberalism to the point where by 1998 the current account
deficit reached US$87 billion as outflows began to dominate external capital
flows.
Meanwhile, the world market’s influence on cyclical oscillations in the re-
gion grew. Its weight within regional gdp almost doubled between 1990 and
2000. In 1990, foreign trade represented 24.7% of regional gdp. This index shot
up to 33.2% in 1995 and 38.6% in 1997, and by the year 2000 it had reached
44.4%. But Latin American exports only increased from 4% to 4.9% of the
world economy between 1990 and 1998, indicating their relative decline (Mad-
dison 2001).
One outcome of cycles being articulated through the world economy is that
Latin America’s close trade links with the US and Western Europe, both areas
of relatively low growth during the post-1994 Kondratiev, have limited its po-
tential for growth. This makes it even more imperative for the region to culti-
vate stronger ties with the internal markets of the East, and Asia in particular.
3.3 Denationalisation and the Destruction of Added Value

Another consequence of the neoliberal model that we mentioned earlier is the
denationalisation of the economy and the destruction of its higher value-added
segments. The former stems from the macroeconomic imbalances caused by
neoliberalism and deepening financial dependency, whereas the latter results
from the competitive insertion of regional economies into a highly monopo-
lised global space of commodity circulation, which destroys their internal pro-
ductive bases more than it articulates them to the international market.
Denationalisation can be measured by (a) the external debt-GDP ratio; (b)
the proportion of mergers and acquisitions accounted for by foreign capital
inflows, and (c) the proportion of national assets owned by foreign capital. Let
us examine each of these indicators in turn.
With regard to external debt, we find that from 1991 to 2002 it grew in pro-
portion to gdp in Argentina, Chile and Brazil. In Argentina it rose continu-
ously and systematically from 29.9% in 1992 to 61.8% in 2001, reaching 153.6%
in 2002 amidst crisis and currency devaluation. In Chile, external debt
represented 45.1% of gdp in 1991 and hit a low of 35.5% in 1995 during the ac-
celerated growth period. Thereafter, however, slower expansion sharpened the
decline in the terms of trade and drove external debt back up to 60% of gdp by

298 Chapter 7
2002. In Brazil, external debt fell from 27.8% in 1991 to 20.4% in 1995 as the ex-
change rate appreciated, but the economic downswing in 1998, the currency
devaluation that followed and the external financing of balance-of-payments
disequilibriums put it back on a non-stop upward trajectory, reaching 41.6% by
2002. Of all the countries under discussion only Mexico actually reduced its
external debt, slashing it from 33.9 % in 1991 to 19% in 2002 after having peaked
at 52.8% in 1995. But it did this through barely sustainable currency apprecia-
tion. These conflicting trends meant that Latin America’s overall external debt
edged up from 36.2% to 39.9% between 1991 and 2002. From 2003 on, positive
balances on current transactions began to reduce regional external debt, bring-
ing it down to 17.3% by 2008. It then rose again to 20.2% in 2009 as current
transactions went back into deficit.18
In terms of our second indicator, mergers and acquisitions, Central Bank of
Argentina data shows that, between 1992 and 2002, 59.7% of the country’s di-
rect investment inflows were used to purchase local assets. Elsewhere, based
on a sample of 350-odd companies in their 2001 study of the evolution of lead-
ing Brazilian firms during the 1990s, Kupfer and Rocha (2001) estimate that
transfer of ownership transactions came to US$117.3 billion and foreign capital
accounted for 62.5% of this total, which corresponds to 44.5% of the financial
account balance over the period in question.
As for foreign capital participation in local assets, Kupfer and Rocha show
that between 1991 and 1999 foreign capital’s share of profits in Brazil leapt from
14.8% to 36.4% of leading firms’ returns. At first this was due to the declining
participation of state enterprises, whose share of returns fell from 44.6% to
24.3%. But from 1996 to 1999 multinational expansion would also affect local
private enterprises, whose share of profits diminished from 44.1% to 39.3%.
Foreign ownership was concentrated in two areas: the service sector and in-
dustry. In the former, its share of profits grew from 9.4% (1991) to 26.1% (1999),
whilst in the latter it rose from 36% to 53.5%, whilst that of local private enter-
prises shrank from 43.5% to 34%.
The destruction of the region’s higher value-added segments is made evi-
dent by two indicators: the share of manufacturing industry in gdp, and the
participation of the metal-mechanical sector in manufacturing. As Fernan-
do Fajnzylber notes, the metal-mechanical industry is the strategic sector of
18 The expanding national debt of Latin American countries is partly internationalised, as-
suming the form of disguised or invisible external national debt. In the case of Brazil, the
region’s leading economy, foreign interests held approximately US$120 billion of internal
government debt in March 2011. This figure represented over 30% of the country’s gross
external debt.

Latin America 299
anufacturing, comprising around 40% of all manufacturing activity in cen-

m
tral countries.
Manufacturing industry has clearly shrunk as a proportion of Latin Ameri-
can gdp, and nowhere more so than in Brazil and Argentina. In Brazil, manu-
facturing represented 33.6% of gdp in 1980. Since then, this share has been on
a downward trajectory, accelerating in the 1990s. In 1990 it fell to 28.4% and in
2000 to 19.8%. In Argentina too the decline is concentrated in the 1990s –
testimony to the damaging effects of foreign trade on industrial activity. In
1980, Argentine industry accounted for 27.9% of gdp. This fell to 25.2% in 1990
and just 16.7% by 2000. In Chile a similar, albeit less pronounced, pattern took
hold in the 1990s, as manufacturing fell from 21.7% to 17.4% of gdp. This put
Chilean industry in a better position than its Argentine counterpart, which
had suffered a currency board regime for over a decade. Mexico has the best
performing manufacturing sector owing to the presence of the maquiladoras.
In 1980 industry represented 22.1% of Mexican gdp, slipping minimally to
21.2% by 2000.
Mexico actually increased its metal-mechanical industry’s share of manu-
facturing activity from 24.7% in the 1980s to 28% in 1997. But in every other
country this share declined: in Brazil from 24.7% to 21.3% (1980–1990); in Ar-
gentina from 25.7% to 17.6% (1980–1996); and in Chile from 18.9% to 12.7%
(1980–1996).
It might be thought that the decline of industry forms part of a tendency for
gdp to shift in terms of its composition towards the more dynamic and skill-
intensive service sector. But in Latin America this shift represents the destruc-
tion of industry’s capacity to add value more than it does the creation of a
value-adding service sector. Several indicators confirm this. In 1999 Brazil
spent 0.87% of its budget on R&D – the same amount as in 1988. This was far
below the 2–3% spent by the central countries (Ministério da Ciência e Tecno-
logia 2003), and the years spent by the workforce in education remained very
low. Mexico, for its part, spent just 0.4% of its gdp on R&D in 1999, whilst in
1995 0.1% of its labour force was employed in activities directly or indirectly
linked to R&D, compared to 0.6% in Italy and 1.2% in France. By 2008, the pic-
ture remained largely unchanged: Brazilian R&D expenditure had edged up to
1.1% of gdp, whilst Mexico’s stayed put at 0.4%. The proportion of Mexican
workers employed in activities directly or indirectly related to science and
technology also remained constant.
What therefore happens under the neoliberal model is that one section of
industry articulates itself with the international market at the expense of the
part focussed on the region’s internal market. Capital goods segments partly
established with a view to integrating national and regional markets are ruined

300 Chapter 7
by international competition. Such processes lead to trade deficits and a ten-

dency to resort to super-exploitation in order to equalise the balance of
payments.
During the first decade of the 2000s not even the return of accelerated eco-
nomic growth after 2003 could prevent industry’s share of gdp from shrinking
further in Latin America, let alone reverse the trend. Between 1985 and 2000 its
share fell from 26.8% to 17.3% across the region as a whole (cepal 2009a). It
then remained at that level, just dropping slightly to 16% in 2007 and 15.2%
during the 2009 crisis – the lowest in thirty years. Growth was strongest in the
transport, storage and communications sector, partly due to the new micro-
electronic paradigm, and there the industrial share of gdp fluctuated between
6% and 5.9% between 1990 and 2000 before rising to 10% in 2009. This increase
combined with the industrial sector’s increasingly limited role in Latin Ameri-
ca and the dominance of financial capital.
Between 2001 and 2009 manufactured products plummeted as a proportion
of Latin American exports from 58.9% to 47.1%, whereas primary products saw
their share jump from 41.1% to 52.9%. But export primarisation failed to trans-
late into an increase in the primary sector’s relative share of our economies’
gdps, as the participation of mining and agriculture decreased from 10% to
9.1% between 1995 and 2007. The greatest expansion was to be had in the com-
munications, transport and storage sector, whose share of regional gdp
jumped from 5.9% to 9.5% of between 1990 and 2007, thus underscoring its
leading role in establishing the long cycle of expansion in Latin America.
However, because it lacked the right technical and scientific infrastructure to
support its development, the sector became a source of large deficits in our
balance of current transactions.
The financial sector has maintained the strong foothold it gained during the
long recessive cycle. Its enduring economic and political weight has damp-
ened the expansive period’s promise and conditioned the use of public re-
sources to features established during the Kondratiev B-phase, such as high
interest rates, high borrowing, and currency valorisation via swings in the fluc-
tuating exchange rate.19 The sector’s powerful presence can be explained by
19 Between 1980 and 1990, the financial sector increased its share in Latin American GDP
from 12.9% to 16.7%. This level remained constant during the 1990s before rising to 17.4%
between 2000 and 2007, reaching 18.3% in 2009. ECLAC estimates of gross national debt
in Latin America show a sharp reduction from 2003 onwards. Between 1999 and 2002 it
jumped from 48.6% to 64.6% of regional GDP, subsequently falling to 33% in 2007. How-
ever, ECLAC overestimate the decline because their data is based on the Brazilian federal
government’s liquid debt, which unlike gross debt shrank over the latter period. Gross
debt increased its share of GDP from 12% in 1994 to 46% in 1999, reaching 54.1% in 2008.

Latin America 301
the weddedness of Latin American bourgeoisies to the US’s declining hege-

monic leadership, which compounds their unwillingness to set up competitive
productive structures and favours a financial dynamic, leading them to neglect
opportunities for structural change. In the first decade of the 2000s, the in-
crease in the terms of trade thanks to Chinese demand eased the balance-of-
payments situation and clashed with existing high interest rates, rendering
them unnecessary for the purpose of capturing capital flows and causing them
to exert a negative influence on fluctuating exchange rates by contributing to
currency overvaluation. The political power of financial accumulation pro-
cesses, which in Latin America reached its zenith in Brazil, explains why in-
vestment rates in the region has remained low even in a long cycle of expan-
sion, failing to recover to 1970s levels despite rising above those of 1980–2003.20
4 Intensified Labour Super-exploitation
In the preceding chapter we discussed the theoretical determinants of deepen-

ing super-exploitation under the neoliberal model. In this section we examine
how such super-exploitation has expressed itself empirically in the same
period.
Over some of the neoliberal period the wage trajectory has been masked by
exchange rate policies that raised the population’s purchasing power above
what real incomes would otherwise have allowed. This led to huge levels of
borrowing and a crisis that then dragged the purchasing power of wages back
into line with the real long-term pattern of accumulation.
Argentina provides the clearest example of this process. During the reces-
sion and hyperinflation of the late 1980s, 32.3% of its population lived below
the poverty line. The Convertibility Plan that created peso-dollar parity then
reduced that figure to around 25%. Poverty remained at that level until 1999.
In October 2009 it hit 64% as liquidity was injected into the economy to prevent the crisis
from deepening. The countercyclical and compensatory measures that followed then saw
it drop down to 51% in 2011. See Banco Central del Brasil data at www.bcb.gov.br (accessed
in 2011).
20 Gross domestic investment made up 27.6% of GDP in 1980 and fell to 18–22% in the 1980s
and 1990s. Its share remained steady into the 2000s, reaching 22.7% in 2008. There was
however an increase in national saving as a proportion of gross investment, from 18–20%
in the 1990s to 22.7% in 2008. There could be a sharp rise in investment when the next
cycle of foreign capital inflows begins in the first half of the 2010s. See the different vol-
umes of CEPAL’s annual series Estudio económico de América Latina y el Caribe at www
.eclac.org.

302 Chapter 7
Economic growth then had to be curbed in order to generate surpluses, and

this drove the poverty rate back up, to 35.4% in 2000 and then 54.3% with de-
valuation in 2002. Importantly, although poverty decreased during the golden
age of neoliberalism for speculative reasons, its structural roots deepened as
unemployment practically tripled from 5.3% in 1988 to nearly 14% in 1999
(cepal 2009b). Meanwhile, the value of labour power grew by 28% from 1980
to 2001 thanks to a rise in average years of schooling from 6.7 to 8.6.21
The case of Mexico illustrates how hard it is for the neoliberal model to pre-
vent super-exploitation assuming the most extreme forms of wage decline. Not
even after entering the expansive phase of the long cycle did wages recover to
1980s levels, when they reached an index of 113.4 – the highest point in the se-
ries. Between 1996 and 2001, they rose to 90 in 1999 and then 104.1 in 2001.22 But
the economic crisis imposed limits on that increase. The level of super-
exploitation is further illustrated by the rise in the value of labour power from 4
to 7.2 years of education between 1980 and 2001 – an 80% increase (undp 2010).
Some have used the example of Chile to question whether super-exploitation
exists in Latin America, given that wages rose and poverty levels fell there
during the 1990s. But a closer look shows us the exact opposite: that super-
exploitation and accumulation go hand in hand. The Chilean economy grew
only after a brutal dictatorship had ratcheted up poverty and unemployment.
The poverty rate leapt from 19% in 1973 to 45.7% in 1987, and was still at 38.7%
when Chile entered its period of accelerated growth in 1990. Can the highly
dynamic nature of Chilean capitalism in the 1990s really be dissociated from
the fact that surpluses were appropriated by slashing the incomes of workers
and their families? The more poverty rates declined, the more the economy
slowed and began heading towards the crisis of the late 1990s. But in 1998 the
poverty rate was still higher than in 1973, whilst years of schooling had in-
creased by 46% between 1980 and 2001 (undp 2010).
Brazil provides another example of super-exploitation manifesting itself.
Here, as in Argentina, currency appreciation disguised rising unemployment
and wage erosion. Several indicators show that between 1994 and 1998, when
the real was strong, workers’ wages grew. According to eclac, real wages rose
from an index of 104.5 in 1990 to 110.8. However, eclac’s wage indicators are
not homogeneous and depend on a variety of national sources. In the Brazilian
21 See UNDP (2010).

22 According to the Mexican National Institute of Statistics and Geography (INEGI), manu-
facturing industry wages plummetted after the economy was opened up in the 1980s and
following the crises of 1982 and 1995. If we take 1980 wages as equal to 100, we find they
declined after 1982, recovered slightly in the 1990s, and reached 71.2 in 1994. With the crisis
that erupted in late 1994 they then fell again, to 60.9 in 1996 and 57.3 in 1997 (Inegi 2000).

Latin America 303
case, these are very limited, referring only to workers covered by social and la-
bour laws in six metropolitan areas. In contrast, dieese data, despite only cov-
ering São Paulo, covers a broad spectrum of wage earners in the labour market,
and its series is more consistent with general economic trends between 1980
and 2002. Based on an index where 1985 = 100, it shows that wages rose from
60.1 in 1991 to 72.3 in 1998, but then fell to 56 in 2002 as a result of currency de-
valuation. This decline is not fully reflected by fluctuations around the poverty
threshold, partly because high levels of informal employment allow an
extremely precarious service sector located outside direct capital-labour rela-
tions to serve as a bulwark against unemployment and falling wages. Nonethe-
less, poverty levels will almost certainly increase again as Brazil heads further
into stagnation and crisis.
Staying with Brazil, the disparity between rising education levels and fluctu-
ating income levels reveal the intensified nature of super-exploitation. The
128% increase in the population’s education levels as measured by years of
schooling between 1980 and 2001 can be contrasted with the 14% reduction in
poverty identified by the ipea or the 10% increase in wages indicated by eclac
figures for the same period. Alternatively we might contrast it with the 46%
reduction in workers’ wages in the metropolitan area of São Paulo between
1985 and 2002 identified by the dieese. Meanwhile, in Colombia, poverty lev-
els rose from 39% to 45% between 1980 and 1997 (cepal 1998b), at the same
time as workforce education levels increased by 53% (undp 2010).
The 17% reduction in regional poverty levels from 44% to 33% between
2002 and 2008, thanks to improved global trade terms and centre-left and left
governments, suggests an inflexion in the tendency towards deepening super-
exploitation. But if we take the last thirty years, we find that poverty in Latin
America has decreased far more slowly than education levels have increased.23
Poverty may well continue to decrease in our region in the 2010s thanks to a
more moderate rise in commodity prices and the advance of left and centre-
left governments. However, this trend could be hard to sustain given the
chances of the world economy’s long cycle of expansion exhausting itself in
the second half of the decade. In such an event, maintaining and increasing
the income levels of our populations will rely far more heavily on political
action.
23 The biggest reduction in poverty was seen in countries governed by the left or centre-left.
Between 2002 and 2008, it fell by 43% in Venezuela, 53% in Argentina, and 31% in Brazil.
In Bolivia it fell by 21.1% between 2005 and 2007.

304 Chapter 7
5 Ecological Decline
One of the trends driven by the dependent integration of Latin America is eco-
logical decline. It translates into using ecosystems for social and economic pur-
poses in ways that consume renewable natural resources at a faster rate than
they can be ecologically regenerated, and represents the super-exploitation of
ecosystems. The main causes of ecological super-exploitation lie in the social,
economic and cultural marginalisation of broad swathes of the population in
those regions whose ecosystem is exploited to satisfy the needs of another re-
gion, with no regard for its internal balance (Herrera et al. 1991, Leff 2001).
For Leff, planning is sustainable if it integrates ecological, technological and
cultural productivities. Ecological productivity refers to the ecosystem’s ability
to produce natural resources, and it relies on conserving the core structures
that ensure long-term productivity (diversity of biological populations, cli-
mate and soils). Technological productivity relies on a set of techniques that
modify the ecosystem’s productive structure by converting its resources into
products and introducing selective regeneration processes. Cultural productiv-
ity refers to the ability to acquire and use empirical knowledge of the ecosys-
tem’s resources with the help of science, education and democratisation.
Sustainable planning puts cultural development at the core of technological
and ecological productivities. On the one hand, the scientific and educational
development of a given culture leads to technologies being introduced that
raise the ecological productivity of a given ecosystem. On the other hand, the
democratisation of sensitivities, preferences and meanings multiplies the ways
in which an ecosystem can be used, broadening the range of components
(biotic and abiotic resources) that support its core structure and long-term
productivity. Resources are managed in an integrated fashion, encouraging the
ecological and technological recirculation of products, by-products and waste.
Leff thus identifies a need for ecosystems to organise production by dividing
it into production for local markets, national markets and international mar-
kets. His approach is by no means a defence of technological stagnation. In
international markets, new technologies would mainly develop economies of
scale and productive integration. In local markets, information technology
would generally develop economies of scope. And national markets would
combine economies of scope and of scale in ways that would vary from one
country to another.
By culturally marginalising and excluding local populations, dependent
capitalism encourages unsustainable and environmentally unsafe develop-
ment in Latin America. It does this in several ways:

Latin America 305
(a) By polarising society between poverty and luxury consumption. In this way,
dependency stimulates the kind of consumption that puts pressure on
ecosystems’ material resources. Luxury consumption encourages indi-
vidualism and waste and encourages forms of consumption with few im-
material inputs of the kind associated with culture, leisure time, science,
art and aesthetics. Consumption of the kind linked to scarcity also priori-
tises the consumption of material goods, but for different reasons. The
concentration of agrarian and urban land ownership, to which scarcity is
related, encourages predatory land use. Large estates and export-based
agriculture use land in a way that reduces its biotic and abiotic diversity
and pushes back the agricultural frontier in order to supply the internal
market, upsetting local ecosystems in the process. Similarly, monopolis-
tic economies lead to spatially concentrated populations where land is
used inappropriately, with no thought for the expansion of public service
infrastructure and the diversity that upholds environmental balance in a
region.
(b) By encouraging patterns of consumption and technology use that mimic
those of central countries. These imitative patterns de-diversify markets
and unduly emphasise the role of scales in developing productive sys-
tems. As a result, technological integration and the international division
of labour develop at the expense of the preservation and diversity of
ecosystems.
(c) By excluding local populations from scientific and educational develop-
ment, and so underdeveloping their capacity to familiarise themselves
with and use local biotic and abiotic diversity to generate new products
and technological processes.
The development of dependent capitalism along neoliberal lines accentuates
these drivers of ecological decline. Neoliberalism deepens international tech-
nological asymmetries and reprimarises dependent countries’ patterns of ex-
ports, linking their trade surpluses to agricultural or mineral products. The
ecological consequences of this model are devastating.24 The proportion of
forest covering Latin America fell from 51.9% to 47.2% between 1990 and 2010,
24 In Brazil, the region’s most industrially and technologically advanced country, the trade
surplus depends entirely on revenues from agribusiness, which supplanted it between
1994 and 2009. In 2002–2009 the trade surplus jumped from US$20.3 billion to US$54.9
billion, whilst the Brazilian Association of Electric and Electronic Industries (ABINEE)
forecast a US$27.5 billion deficit in the electroelectrónics balance for 2010, 59% higher
than in 2009. UNCTAD’s R&D Innovation Capability Index for Latin America fell from
0.375 to 0.360 between 1995 and 2001, despite rising in Brazil from 0.459 to 0.478 over the
same period. See UNCTAD, World Investment Report, 2005.

306 Chapter 7
and from 69% to 62.4% in Brazil. Much of this deforestation process is related
to the expansion of soybean cultivation, which by 2008 took up 35% of arable
land in Brazil and 52% in Argentina, up from 22% and 18.5% respectively in
1990.25 Deforestation is one of the chief signs of ecological decline in Latin
America, along with species extinction, desertification, the loss of soil nutri-
ents and the carbon dioxide emissions contributing to global warming. Con-
servative estimates suggest 100–350,000 tropical species will become extinct by
2030 (Herrera et al. 1991).
The situation is clearly unsustainable and must be turned around. The next
technological paradigm, which should emerge in a mature form in the mid-
2020s, is biotechnology. To take advantage of the possibilities biotechnology
offers the region and humanity, Latin America must supersede the patterns of
dependent development that have so far structured its social and historical
formation. Less than 2 million out of an estimated 5–10 million species of or-
ganisms are known to mankind. Of the known species, 35% are in the tropics,
where an estimated 74–86% of all living organisms live (Herrera et al. 1991).
Preserving these species and creating the technological and scientific means to
articulate them with human development represents an ethical imperative,
which demands the mobilisation of Latin American subjectivity in order to
bring a new regional development pattern to bear upon the world system.
6 Towards a New Pattern of Regional Development
As we have observed throughout this work, the developmental patterns that

dependent capitalism has in store for Latin America in the coming decades are
highly dangerous. They deepen super-exploitation; offer low or unsustainable
economic growth; create political and social vulnerabilities, and damage the
environment, thus upsetting the ecological balance. Such patterns go hand-in-
hand with the expansionary impulse of a decadent world system immersed in
a full-scale civilisational crisis.
A new developmental pattern is therefore in order: one that breaks with
super-exploitation; democratises participation in and access to public and pri-
vate administration, and prioritises economic growth whilst ensuring its com-
patibility with ecological balance. The new pattern should articulate itself with
the international market but give precedence to the internal market and
25 The numbers affected by floods, the main cause of death by natural disaster along with
storms and earthquakes, increased from 710,000 to 1,700,000 a year between the 1990s and
the 2000s. See CEPAL (2009c).

Latin America 307
regional integration. The emergence of a strong popular antineoliberal con-

sensus makes this alternative all the more feasible.
Coming up with new kinds of development will require creativity and mass
participation across the region. We can however sketch out some of the guid-
ing principles behind such an endeavour:
a. Latin America can only overcome its semi-peripheral and peripheral status
through a combination of cutting-edge technology imports and local skills-
building. Sustainable economic growth requires an equilibrated regional
balance of payments, and trade surpluses are crucial to achieving this.
Used appropriately, they can help combat technological backwardness.
But they should be generated systematically and not just in times of crisis
when there is a lack of demand. Neither should they depend on reprima-
rising exports when commodity prices rise whilst neglecting internal
sectoral chains that could rebalance our international insertion. Trade
surpluses should form part of trade, currency, industrial and techno-
scientific policies that shield Latin America from competition enough to
earn foreign exchange and support rates of investment that allow the
region to expand faster than the world’s organic core, thereby making
income convergence feasible. Levels of protection and currency devalua-
tion would then diminish as industrial and techno-scientific development
closes the technological gap between Latin America and the world econ-
omy and raises the added value of regional exports.
b. Currency and trade policy should be articulated with industrial and techno-
scientific policy. In other words, the region’s productive sectors should
only be selectively protected. The world economy is becoming ever more
integrated. It therefore falls to Latin American public policy to make inte-
gration fair by guaranteeing the survival of key productive sectors that
generate cutting-edge technology. Priority should therefore be given to
protecting those sectors alongside other strategic sectors such as those
that produce food, essential raw materials, energy and infrastructure.
These sectors can provide food security and produce the basic inputs the
economy needs in order to function.
c. Industrial and science/technology policy should create highly productive
national and regional systems of innovation. This means subordinating
the importation of technology to local skills-building. Cepalista import-
substitution policies must therefore be abandoned, because instead of
generating innovation internally they favour introducing technical prog-
ress through imports. To generate technology locally, universities and
research centres carrying out basic investigation should work with pro-
ductive sector enterprises. That means the State must play an active role

308 Chapter 7
in nationalising and regionalising the productive and financial compo-

nents of innovation, because global private investment in R&D is heavily
concentrated in transnational parent companies. Such an innovation
model should provide low-cost financing by setting average interest rates
below gdp growth rates and granting subsidies or loans to the sectors
with the greatest potential for invention and innovation. It should also
help skill up the workforce and democratise management processes so
that workers become a leading source of technological innovation. And it
should be anchored in a large internal market, so that consumers are
more satisfied and can engage in quality control themselves.
d. Education and training policies should prioritise both universal, high-
quality secondary education and the expansion of higher education, where
most basic research takes place. These policies should encourage firms to
invest in training workers.26 But they should not only offer workers for-
mal qualifications – they should also intervene institutionally to democ-
ratise labour relations. The democratisation of labour relations implies
guaranteed employment; less hierarchies; narrower wage differentials
across roles; planned career development, and internal labour markets.
This policy should be combined with the democratisation of social rela-
tions, which means universities, social movements and civil society or-
ganisations must be allowed access to the mass media.
e. In financial matters the State should pursue a policy of financial asset de-
valorisation, devaluing securities in relation to their book value as part of a
new method of calculating the principal on public debts. In addition, pay-
ing the principal on these debts should be conditional upon sustained
economic growth and high rates of investment. The State should inter-
vene in capital flows by both restricting profit remittances and control-
ling the exchange rate in order to avoid retaliation in the form of capital
flight. Service balance deficits would narrow considerably as a result of
these measures, with a positive impact on the current account. Com-
bined with falling interest rates, this will allow a large mass of resources
to be channelled into the productive sector and the State will recover its
capacity for investing, which is still largely being drained by the financial
sector.
f. Fiscal policy should prioritise taxing monopolies, high incomes, and luxury
consumption, stimulating internal market expansion and putting eco-
nomic growth at the service of the popular sectors and eradicating
26 In Brazil 0.5% of corporate turnover is invested in training workers, whilst globally 2% is

spent on exploiting the potential of new technology. See Coutinho and Ferraz (1994).

Latin America 309
overty. By increasing tax revenues thus, the State will be able to expand
p
spending and use different mechanisms to ensure that the mass of the
population has access to food, clothing, housing, health and sanitation.
g. The land ownership issue should be tackled through an agrarian reform
that eliminates large unproductive property and prioritises agricultural
production for the internal market. Such a reform would replace the big
farm/small farm dichotomy with a landowning system based on small
and medium-sized property. It would also increase agricultural produc-
tion for internal or regional consumption, provide for a fairer distribution
of income in the countryside, and guarantee food security.27 To achieve
this the State should structurally promote agricultural externalities by
guaranteeing cheap credit, technological support, insurance against crop
failure, etc. The postwar experiences of South Korea and Taiwan testify to
the efficacy of such measures.
h. Environmental policies should be integrated into development. Such poli-
cies should promote the use of biotic and abiotic diversity, integrated
resource management, and economies of scale and scope to suit produc-
tion for local, national/regional or international markets. They should
also focus on replacing fossil and non-renewable fuels with renewable
energy inputs such as biomass and solar energy, taking advantage of the
natural potential of the tropics and the imminence of the biotechnologi-
cal paradigm, which is expected to mature in the next twenty or thirty
years.
i. These development policies should first be implemented nationally but aim
towards regional integration. By integrating, Latin American countries
can expand productive scales, broaden internal markets, raise capacity
and develop diversity and complementarity across science, technology,
education, ecology and culture.28 Regional integration should not be
27 As the CEPAL report Quince años de desempeño económico: America Latina y el Caribe,
1980–1995 reveals, the main obstacle to agricultural production in Latin America is access
to land. Thus in 1990, productivity per hectare of land farmed in Latin America and the
Carribean outstripped that of the United States and Canada: 428 dollars per hectare com-
pared to 317. But the ratio of hectares cultivated per worker was 3.7 in Latin America and
the Carribean and 71.3 in the US and Canada (CEPAL 1996, 96).
28 Integration is not a prerrequisite but a product of new patterns of development and a
moment in their evolution. The changes discussed here could therefore be implemented
in a ‘first moment’ in national states – mainly continentally sized states such as Brazil,
Mexico and to some extent Argentina, as scientific, technological, educational, social,
economic and cultural heterogeneity mean that the integration of scales and scopes with-
in national frameworks can play a big part in the new pathway to technical progress. This
is achievable because productivity would be boosted by suppressing these heterogeneities

310 Chapter 7
l imited to trade, but should include building regional administrative and

planning structures with wide-ranging powers of macroeconomic and
political intervention in national states. A network management model
should be developed that transcends the limits imposed by transnation-
als and global enterprises. Whereas the latter simply use cooperation to
complement their corporate and competitive focus, regional integration
should make it the central axis of corporate and competitive relation-
ships. Regional public institutions need to find ways of cohering different
national organisations into single units that, through cooperation, can
overcome the inefficiency of their constituent parts in order to develop
the capacity of the whole. With that in mind, trade surpluses could con-
tribute to an investment fund governed by a Latin American logic. That
would necessarily mean developing a regional financial architecture
around public banks like Banco del Sur and a regional monetary stan-
dard. Another strategy that fits with this mode of development is for the
State to set productive and corporate integration processes in motion.
This would help articulate the mode of development with a logic based
on reducing inequality and in so doing address two needs: the social need
to eradicate poverty and exclusion; and the need for economic growth,
given that productivity, as we have noted, is increasingly a function of
diffusion.
j. Latin America’s national and regional self-affirmation should be articulat-
ed with antisystemic social movements and their political and economic
leadership of national governments. In this regard, the brics could repre-
sent an intermediate alternative and a staging post in the transition to
multipolarity. Meanwhile in central countries the combined presence of
black, African, Latino and Asian populations together with high youth
unemployment creates the potential for a global, democratic and anti-
imperialist political culture.
To be sure, these policies would not be applied in a vacuum but in a social
context riven with conflicting interests. They cannot be taken as abstract ideas
applied by States that hover over socio-economic formations. As the challenge
of Latin American integration has illustrated, a public sphere is formed as a
result of the hegemonic power wielded by social classes and groups over soci-
ety as a whole. In that sense, the extent of State involvement in carrying out
such transformations is largely determined by the internal and external oppo-
sition it encounters along the way.
and natural resources would be used in accordance with a sustainable policy that sup-
ports national interests.

Latin America 311
This historical possibility can only be realised if a new hegemonic project

emerges in the region. Such a project must represent the mass of the popula-
tion and take up the most acute issues facing Latin America and the world
system. It will need the internal forces capable to put it into practice and the
support of international allies.
The future of the social sciences in the region would appear to us to hang
on its ability to locate the question of Latin American development within
this global context. The 21st Century brings a new world in its wake, one
that is arriving on the cusp of a historical whirlwind, where time accelerates
unforgivingly and the barriers between regions and between past, present
and future are crashing down around us. Historical perspectives, planning
and reason lie are the key to this new world. It cannot be governed by posi-
tivism and pragmatism, which have become too obsolete and decadent to
serve in a maelstrom.
The 21st Century calls out for a utopia. It calls out for imagination. It is the
only way the present – what currently exists – can withstand the pressure of
the future and embrace it. Our utopia consists of Latin America’s liberation
from the yoke of dependency and exclusion. This kind of liberation has yet to
come to pass. But its ingredients are present in the tensions and in the move-
ment of social forces. It is our conviction that, contrary to the belief of many,
the challenge of liberation will be ours to grasp in the 21st Century.

Chapter 8
Conclusion
When we began work on this book, our aim was to gauge the impact of the
neoliberal model on Latin America. That quest took us on a very long journey.
We could have taken more direct and safer routes, but our path was deter-
mined by very specific concerns: the huge global transformations that have
touched the innermost corners of our lives and still demand an explanation,
and our awareness that all of the deeply flawed interpretations advanced in
respect of Latin America seek to isolate the region from the wider world and
treat it as a separate reality. In contrast, we chose to include the world system
within our object of study and articulate Latin America to three concepts
which are crucial to understanding the conjuncture it is currently in: globaliza-
tion, dependency and neoliberalism. We shall now review this endeavour by
summarising our main points.
When we looked at globalization we found that social thought has come to
a wide and disparate range of conclusions, which we divided into five or six
different approaches. We proceeded to fashion our own analytical instrument
located at the point of convergence between world system theories and Marx-
ism. We interpreted globalization as a revolutionary transformation of the pro-
ductive forces that has failed to fully revolutionise its material and institutional
base. Its origins lie in the emergence and diffusion of the techno-scientific
revolution. But that revolution conflicts with the capitalist mode of produc-
tion and its political-institutional expression: the modern world system. And
so globalization heralds not a new era, but rather a period of transition whose
destination will be decided by social struggle.
Our interest lies in the nature of that clash and its short, medium and long-
term impacts. On that basis we set out to define the current conjoncture and
how it fits into the longue durée. We did so by considering the origins and chief
determinants of historical capitalism, as expressed in secular trends and cy-
cles. We discussed the rise of historical capitalism and argued that it estab-
lished itself via the formation of the modern world system followed by the
development of the capitalist mode of production. The former gave historical
capitalism its political superstructure and the latter gave it a material base.
Historical capitalism exhibits secular and cyclical trends whose origins lie in
this superstructure and base. The secular trends we highlighted include unfet-
tered accumulation, the declining tendency of the rate of profit, and the State’s
need to broaden its demographic, territorial and legitimatory bases in order to

Conclusion 313
coordinate the modern world system. We described systemic cycles and Kon-
dratiev cycles as two of historical capitalism’s leading cyclical tendencies.
We affirmed that the specificity of a conjuncture resides in the particular
way it combines secular trends and cycles. This methodology not only enables
us to determine the specificity of different conjunctures, but also to articulate
them with each other, drawing out their similarities and differences. We theo-
rised that the current conjuncture combines a crisis of the secular trends of
historical capitalism with the downward phase of the systemic cycle and the
rise of a new Kondratiev.
The crisis of secular trends is caused by the gradual exhaustion of counter-
tendencies to the declining rate of profit. Their exhaustion is a result of science
becoming a central force within the productive process and eliminating the
chief source of surplus value–the expenditure of mainly physical labour. This
is a key feature of the techno-scientific revolution. But contra Robert Kurtz, the
exhaustion of countertendencies to the falling rate of profit is also compatible
with a long ascendant phase, as we show in Chapter 4. However, the new Kon-
dratiev will lack the splendour of its postwar counterpart, most notably in the
core countries. This is because it will be influenced by weaker secular trends of
accumulation and the downturn in the systemic cycle. The axis of develop-
ment will instead shift towards East Asia, opening up new opportunities for
the peripheries.
The coming together of these trends has a wide range of economic, political,
social and ideological consequences. The most far-reaching one is that the
current crisis, which the ascending Kondratiev will be too weak to end, is a ci-
vilisational one: it calls into question the capitalist mode of production, the
modern world system, hegemony, imperialism and occidentalism. The pro-
gressive exhaustion of capitalism’s secular trends has left it incapable of over-
coming the systemic crisis. With knowledge diffusion, another core feature of
the techno-scientific revolution, it is no longer possible to concentrate the
amount of technological, economic, ideological, political and military power
required to maintain or revive hegemony. The tendency of the rate of profit to
fall renders capitalism too obsolete to foster new technologies and diminishes
its power to generate growth and economic leadership. We expect the crisis to
develop in the context of the current systemic cycle and therefore, by our reck-
oning, between 2015–2020 and 2045–2050.
This context of decline will severely weaken the revolutionising impact of
the new Kondratiev’s ascendant phase. We argued that there are two revolu-
tionary periods in the Kondratiev cycle: the ascent, highlighted by Nicolai Kon-
dratiev, when capitalism’s secular forces are re-energised and destroy the old
structures blocking their expansion; and the descent, emphasised by Mandel,

314 Chapter 8
when popular forces dispute capital’s political, social, economic and ideologi-
cal leadership in order to reorganise society and save it from the decline capital
has condemned it to. This new period of expansion is so weak that any major
social change is highly unlikely during its lifetime. It resembles other, similar
historical moments such as very last expansive period of British hegemony,
which was economically mediocre and politically sterile. The imperial struc-
ture in place in the 1870s, 1880s and 1890s prior to British hegemony unravelling
remained intact right up until the crisis of the 1910s, whence it began its long
process of disintegration. The Ottoman and Russian Empires fell apart and the
Chinese and Mexican revolutions first began in this period. But the moment
was still one of secular strength for historical capitalism. The ascendant phases
provided the key to renewal, which reached completion with the transition to
a new Kondratiev in the 1940s. Today we are in a different moment. The secular
and systemic trends are weaker and the Kondratiev’s revolutionising impact is
being felt during the transition from maturity to recession.
Therein lies the reason why neoliberalism has become so powerful in the
current historical context. The ascending Kondratiev phase did not come to
destroy it. Faced with a secular and systemic crisis, big capital is increasingly
resorting to state dirigisme and imperialism to solve its economic and political
problems. Neoliberalism is bound up with a return to territorialism, just as
Spanish anti-mercantilist colonialism and British liberal imperialism did in
the past. But there is a crucial difference: neoliberalism directs territorialism
inwards towards the world system and calls the core principles of the interstate
system into question. Only thus can big capital impose the ideology of compe-
tition onto the four corners of the world and appropriate the surpluses
produced by less competitive countries. But that alone is insufficient: neoliber-
alism must also prevent national and regional sovereignties from establishing
alternative developmental patterns and interfering with control over unfairly
distributed strategic natural resources.
Neoliberalism’s evolution in this direction is not inconsistent with its chief
ideological tenets, as we demonstrated by looking at the work of Friedman and
Hayek. Both men privileged economic over political freedom and saw national
sovereignty as limiting global economic competition. In this way the most con-
servative segments of the US bourgeoisie have become the vanguard of global
fascism. Their dilemma resembles that of the Spanish and Genoese bourgeoi-
sies upon the outbreak of the crisis that engendered the modern world system.
Bound to imperial political structures, they failed to find an heir in the new
systemic structure being forged in their midst, and used up all their strength in
fighting against it. Later hegemonies did not go down the same path. Instead
the hegemon in decline dealt with the brewing crisis by choosing a successor,

Conclusion 315
with whom it then enjoyed a privileged relationship in the new systemic cycle
that was consolidated once the battle for the hegemonic throne was over.
As the last bastion of a decaying system, the US bourgeoisie cannot find an
economically powerful enough successor with whom to strike up a relation-
ship. For a time Japan looked a likely candidate, but the country found itself
unable to combine a sustained rate of profit with higher productivity. China,
for its part, lacks the characteristics of a hegemon. Instead, its peripheral/
Asian origins, demographic and territorial base and political model make it
more of a hinterland. A huge crisis has gripped historical capitalism and its
Western European/North American version in particular, and for the first time
ever it has proven too obsolete to lead the global development of the produc-
tive forces.
The problem of hegemonic leadership has made the international division
of labour under this civilisational form extremely vulnerable. It is increasingly
clear that subservience to neoliberalism is holding back the economic devel-
opment of peripheral countries. The relationship between dependency and
development, forged in the postwar years when socialist experiments in the
periphery were isolated, has become precarious and constrained. But even this
victorious model was built upon serious contradictions. In the end foreign
capital influxes failed to boost peripheral development, neither raising its rate
of saving nor financing its balance-of-payments disequilibriums. Instead they
decapitalised the periphery, and in socio-economic terms this led to labour
super-exploitation.
We embarked on a wide-ranging theoretical and empirical survey in de-
fence of our perspective. We examined the main arguments of national-
developmentalism, modernisation and dependency theories, endogenism,
neo-developmentalism, neoliberalism and world system theory and held them
up to the empirical record. We paid particular attention to the concept of
super-exploitation, demonstrating its theoretical relevance to Marxist political
economy and its historicity.
In discussing the neoliberal model we distinguished it from other models
that have regulated dependent capitalism in Latin America and contrasted it
with the types of development established under US hegemony. We argued
that the main difference between them is that neoliberalism brings a much
higher level of international competition to the region and tends to turn its
historical trade surpluses into deficits.
Latin America suffers secular outflows of foreign capital. These outflows
represent balance-of-payments disequilibriums, which are paid for through
financial dependency and trade surpluses. Because of its deepening financial
dependency, the region has experienced a secular tendency towards s tagnation,

316 Chapter 8
as the limitations imposed by mounting foreign debt in the 1980s clearly illus-
trate. But the neoliberal model adds a conjunctural limitation to this structural
one. The elimination of trade surpluses during economic growth diminishes
the region’s ability to finance outflows. This, at a time when the hegemonic
crisis of the United States prevents it from injecting liquidity into the world
system. This has led to economic expansion being prematurely interrupted;
the denationalisation of productive assets; intensified super-exploitation in
the form of ever-tighter wage squeezes, and the destruction of branches of pro-
duction geared towards the internal market, such as the capital goods sector.
The crisis of neoliberalism began to unfold in the 2000s. Slow and prolonged,
it has lasted the course of the expansive Kondratiev phase. Internationally it is
expressed by the Chinese and East Asian economies becoming the central axis
of global economic expansion, and regionally by the decline or collapse of the
neoliberal political leaderships that hegemonised Latin American states in the
1980s and 1990s. The crisis has opened windows of opportunity for Latin Amer-
ica. China’s influence has helped the region to temporarily reverse the deterio-
ration in the terms of trade, and new centre-left governments have helped grow
the internal market, reducing or containing the rise of super-exploitation. Yet
there are still numerous reasons to doubt whether this conjuncture can be sus-
tained. Many of the core components of neoliberal political economy remain
in place. This has the effect of further reprimarising the region’s exports; keep-
ing the extent of financialisation at its current level, and preventing productive
restructuring towards more advanced systems of innovation, which leaves us
at the mercy of cyclical price oscillations in primary and basic products.
Earning foreign exchange from primary product exports should not be seen
as a structural means to achieving international insertion. Instead it should be
subordinated in the pursuit of the latter to promoting advanced productive
specialisation at the techno-scientific level. This is vital if Latin America is to
become a major centre of accumulation and exercise a sovereign role in the
international division of labour amidst powerful multipolar tendencies in
the world. Such a project would have to articulate the State with socialised
decision-making and better living standards and training. But under the lead-
ership of dependent bourgeoisies the upturn in the primary product price cy-
cle could open the doors to an assault on social conquests and rising levels of
super-exploitation, as basic products resume their secular trends and are nega-
tively affected by superprofits.
Latin America stands at a crossroads in the coming decades. It can either
bolster a decaying hegemony that has lost economic, political and ideological
leadership by submitting to its public policy model, thereby suffering the

Conclusion 317
same fate as Britain’s Asian colonies; or else it can strike out on the path of self-
determination and development. But that path ought not to lead to isolation-
ism. The region will have to find new ways forward, reconciling national and
regional realities with global ones. Ideally it will obtain resources for develop-
ment from regional integration and invert its historical relationship with
foreign capital, subordinating it to accumulation’s internal dynamic. We are
talking about a far-reaching process in search of a new geometry: a process
that is not merely deductive but grounded in the time-old urge to end the op-
pression that fragments the world into hegemonies, empires, and social class-
es, and rebuild it in the name of universal fraternity.

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Index
Africa xiii, xv, 8, 42, 53–54, 85, 131, 151, 168, Brzezinski, Zbignew 5
185, 199, 277 Bukharin, Nikolai 14
Aglietta, Michael 107 Burke, Edmund 125
alba xx, 247, 288 Bush, George W. xii–xiii, 128–30, 144, 164,
Amin, Samir 6, 35, 122, 133, 269 173–74, 176–79, 182, 187, 194, 284
Anderson, Perry 22, 28, 125, 132
Antisystemic xviii, xxvi, 13, 14, 17, 18, 25, 35, Campos, Roberto 207–12, 245
40, 95, 120, 123, 128, 145, 180, 195, 197, capital, centralising 79, 244
225, 310 capital accumulation 8–9, 15, 20, 34, 42, 45,
movements 13, 128, 195, 197, 255 55, 84, 87–89, 113, 115, 118, 120, 124–25,
Antunes, Ricardo 91 152, 185, 189, 192, 222, 229, 258, 268
Argentina 74, 140, 171, 199, 227, 244, 250, 254, capital flows 124, 210, 232, 293, 301, 308
269, 271, 275, 279–81, 284, 286, 288, 290, international 35, 124, 166–67, 275–76,
294, 297, 299, 301–3, 306 290–91
Arrighi, Giovanni 31–33, 38, 43–47, 49, capitalism 2, 6, 8, 10–11, 13–15, 17–20, 24,
51–52, 56, 58–62, 65, 69–70, 111, 139, 148, 26–27, 29–35, 37, 39, 41, 43–45, 53,
153, 240, 249–50, 254 71–75, 77–79, 87, 89, 91–93, 95, 100–103,
Asia 32, 42, 48, 50–54, 67, 120, 131, 160, 177, 114–16, 130, 133, 142–44, 153–54, 189–91,
187, 199, 297 204–5, 221, 241–42
Asiatic mode of production 27–28, 264 monopoly 229–30, 241
capitalist development 2, 11, 14, 19–20, 26,
Bachelet, Michele 127 32, 35, 74–76, 78, 103–4, 118, 122, 193, 212,
balance-of-payments crisis 175, 199, 202, 255 232, 262, 264, 270–71, 275
Bambirra, Vânia 85, 211, 219, 225, 262–63, 278 Caputo, Orlando 8, 67, 193, 210, 219, 225, 275,
Baran, Paul 219–21, 224, 228–30 293
Belluzzo, Luiz Gonzaga 122, 189–190 Carcanholo, Marcelo 266, 271
Bernstein, Edward 14 Cardoso, Ciro Flammarion 241
Berr, Henri 12 Cardoso, Fernando Henrique 51, 207, 214–19,
Blair, Tony 127, 179 228–30, 236, 244, 262, 271, 275
Bloch, Marc 12 Cardoso, João Manuel 189
Bolivarian Revolution 171, 247 Castañeda, Jorge 243, 265, 269
Bolsonaro, Jair xiv, xx Castro, Antonio Barros de 242–43
bourgeoisie, local 119, 217, 239, 241, 285–86 Ceceña, Ana Esther 8, 24, 138, 184–86, 188
Boyer, Robert 107–8 cepal 199, 231, 233, 245, 256, 288, 290–91,
Braudel, Fernand 7, 9, 12–13, 18, 20, 30–33, 294–95, 300–303, 306, 309
43–44, 75, 119 Challenges of Globalization 1, 4–5, 7, 9, 11,
Brazil 4, 6, 61, 140–41, 185, 187, 194, 199, 208, 13, 15, 17, 19, 21, 23, 25
210, 212, 217, 236, 241–42, 244–45, 249, Chávez, Hugo 127
254–55, 261, 264, 269, 275–80, 284–86, Chesnais, François 6, 55, 102, 155, 184,
288, 290, 292, 294–95, 297–99, 301–3, 189–90
305–6, 308–9 Chile 84, 140, 241, 244, 247, 254, 269, 279–80,
Brenner, Robert 111, 155, 162 283, 286–88, 291, 294, 296–97, 299, 302
brics xiii, xv, 141, 187, 194, 255, 277, 289, 292, China 3, 8, 26, 53, 62, 66–67, 100, 103, 120,
310 123, 137, 139–41, 151, 167–69, 171–72, 181,
Brigñoli, Hector Pérez 51, 198, 241 183, 187, 191, 194, 232, 235, 238–40, 253,
British hegemony 49–58, 64, 134, 159, 175, 201 255–56, 277, 281, 286, 288–91, 296

Index 345
circulating capital 4, 35, 37, 79, 87, 89, 117, eclac 199, 204, 245, 300, 302
159, 192–93, 203 ecological crisis 141, 144
civilisation xviii, 75, 94, 95, 121, 138, 141–143, economic growth 57, 71, 99, 111, 122, 126, 130,
148, 150, 170 136, 138–39, 158–59, 166, 170, 172, 177–78,
class struggle 75–76, 242, 265, 199, 206, 209, 225, 232–34, 237–38,
269 244–45, 281–82, 286, 293, 295, 302, 306,
Clinton, Bill 39, 127, 130, 136, 176–177, 308, 310, 316
182–183, 284 ecosystems 150, 304–5
Clinton, Hillary 183 Edquist, Charles 37
Clinton-led 39 Eichengreen, Barry 57
Cold War 12, 61–62, 110–11, 139, 174–76, 197, Engels, Frederick 14, 17–18, 20–24
251 European World-Economy 27, 30, 53
Colombia 185, 254, 279, 280, 291, 303 expansion, long cycle of 300–301, 303
commodities, devaluation of 259, 273 expansive phase 43, 64–65, 79, 83, 86, 89,
contradictions 7–9, 42, 44–45, 90, 93–94, 96, 96, 129, 145, 153–54, 158, 164, 237, 290,
99, 114–15, 117–19, 124, 127, 130, 135–36, 302
138, 161, 164, 171–73, 176, 188, 192, 212, exploitation 190, 193, 258, 265, 268–69,
215, 221, 226–27, 232, 257, 260, 273, 272
275–76, 281
Coriat, Benjamin 56, 105–07, 109 Fajnzylber, Fernando 298
Correa, Rafael 128, 286 Faletto, Enzo 214–19, 228–29, 232
countries, semi-peripheral 38, 61, 63, 117, Fanon, Frantz 199
123, 139–40, 196, 249 fascism 59–60, 66, 85, 128, 132, 143, 147, 155,
Couto e Silva, Golbery 277 175, 226–27, 279, 283
crisis, systemic 2, 24, 39–40, 313–14 Febvre, Lucien 12
cycles, long 2, 17, 71–73, 75–77, 79, 81, 89, 302 Feijoo, Jose Valenzuela 265, 268
Cuba 151, 179, 187, 188, 216, 237 Fernandes, Florestan 195, 211, 240–41, 249
Cueva, Agustin 241, 264, 271 feudalism, crisis of 27–28, 31, 33, 146
fictitious capital xvii, xix, xxi, 114, 129, 130,
Day, Richard 74 137, 145, 155, 165, 182, 275, 277, 287, 288
De Bernis, Gerard 107 financial capital 4, 33, 97, 122, 131, 189–90,
decapitalisation 220, 230 229, 277–78, 300
dependency 1–3, 14, 16, 24, 30, 123, 195, 197, financial dependency 217–18, 228, 232–33,
203, 211, 213–19, 221, 225–26, 228, 230, 238, 244, 253, 277, 294, 315
232, 234–36, 240, 247–48, 257, 261–65, financial liberalisation 111, 277, 280
267, 270–71, 275, 278–79, 281–82, 285, Fiori, José Luis 6, 122, 242, 244
292, 311–12, 315 fixed capital 82, 88, 93, 192–93, 224
political economy of 3, 257, 259, 261, Fordism 22, 56, 105–6, 112
263, 265–67, 269, 271, 273, 275, 277 foreign capital 38, 67, 109, 140, 172, 175, 200,
dependency theory 1, 8, 14, 16, 24, 184, 195, 203–5, 207, 209–10, 212, 217, 225, 227–28,
197, 206, 211, 220–21, 228, 240–42, 248, 230, 232–33, 238, 244, 247, 259, 277, 285,
252, 255, 262, 264, 315 287, 289, 293–98, 315, 317
dependent capitalism 141, 217–19, 221, France 12, 49, 52, 55–58, 62–63, 100, 103, 130,
224–26, 230, 232–33, 237–38, 240–41, 140, 184, 253, 264, 299
256–59, 262–64, 266–67, 272, 276, Franco, Gustavo 245–47
280–81, 304–6 Frank, Andre Gunder xvi, 34, 48, 53, 60, 82,
dollar, overvalued 162, 165 200–201, 217, 219–21, 224, 263, 271
Dosi, Giovanni 80 Freeman, Christopher 37, 54–55, 78, 80–81
Dreifuss, René 5, 102 Fukuyama, Francis 55
Dutch hegemony 40, 49, 51 Furtado, Celso 7, 51, 200, 202, 204

346 Index
Germani, Gino 206, 207 Japan

Germany 11–12, 53, 56–58, 60, 63, 127, 130, capitalism 107–8
140, 159, 172 crisis 107, 109, 111–12
Giddens, Anthony 5, 146 economy 107, 110–11
Gills, Barry 7, 8, 34 productivity 112
global South xiii, xv, xvii Jospin, Leonel 127, 130
globalization 1–2, 4–11, 13, 15, 17, 19, 21, 23,
25, 96–97, 99–103, 105, 107, 109, 111, 113, Katz, Claudio 265, 269
115, 117–19, 121, 123–25, 127–29, 131, 133, Kautsky, Karl 14
135–39, 141, 143, 145, 147, 149, 312 Kay, Cristobal 265
Grilliches, Zvi 116 Keck, Otto 55, 57
Grossmann, Henryk 17 Kemp, Tom 53, 55–57
Grotius, Hugo 48 Kennedy, Paul 47, 53
Keohanne, Robert 5, 146
Habermas, Jürgen 5 Kershaw, Ian 60
Hayek, Frederich xviii, 125, 126, 132, 314 Keynesianism xvi, 65, 66, 125, 197–200, 207,
hegemonic crisis 16, 25, 45, 49, 102, 110, 134, 251, 252, 270, 279
138, 153, 155, 171–72, 179–80, 194, 255, Kindelberger, Charles 206
282–83, 316 Kirchner, Cristina xx, 127, 254, 286
hegemonic state 7, 18, 40, 42, 44–45, 64, 68, Kirchner, Nestor 127
70, 130, 132, 134, 136–37, 148, 152–53, 188, Kitchin, Joseph 17, 72–73, 77, 85
237, 249 Kohl, Helmut 127
hegemony, crisis of 2, 9, 57, 134, 144, 186 Kol, Henri Van 14
historical capitalism 2, 8, 10–11, 17, 19–20, Kondratiev, Nicolai 14, 16, 25, 55, 71–77, 79,
23–24, 29, 32, 38–40, 45–46, 68, 74–75, 81, 83–84, 290, 313
81, 90, 96, 100, 103, 114, 119, 122–24, 131, cycles 9, 24–25, 35, 43, 51–52, 54, 71, 75,
133, 135, 138, 140–41, 143–49, 152–54, 221, 77–79, 81–82, 85–86, 96, 103, 114, 118,
227, 312–14 120, 128–29, 145, 154–59, 164, 167, 184,
Hitler, Adolf Xviii, 145 193, 313
Honduras Xiv, 171, 247, 280, 281, 288 debate with Trotsky 74–75
Hopkins, Terence 24, 70 Kurz, Robert 103
Huntington, Samuel 145, 147, 184
labour
Ianni, Octávio 5, 151, 240 abstract 36, 121, 150, 223
Imbert, Gaston 43 dead 87, 89
imperialism 2, 14–17, 51, 58, 102, 129, 153, necessary 88, 93, 96, 121, 263, 269
186–87, 196, 199, 216, 221, 228, 243, 252, unpaid 88
254, 261, 264, 276, 278, 313–14 labour exploitation 89, 91, 190, 259
India 8, 51, 53–54, 66, 100, 120, 139–41, 160, labour power
168–69, 171, 194, 253 average value of 268–69
inter-capitalist competition, intensified 36, prices of 37, 100, 113, 118, 142, 190, 225,
100 258, 260, 265, 267–69, 271, 274
interest rates 72, 77, 79, 82, 114, 129–30, value of 23, 78, 91–93, 95, 103, 105, 113,
144–45, 156, 162, 172, 176, 178, 181, 186, 119, 139–40, 258, 265, 267–69, 274,
209, 284 302
internal market 7, 40, 56, 64, 133, 141, 166–67, labour power reproduction 102, 118, 130, 170
182, 201–3, 205, 216–17, 220, 222, 225–26, labour process 56, 79, 90–91, 93, 95, 108, 121,
233, 235, 238, 241, 255, 261, 271, 277, 282, 186, 272
291, 297, 299, 305–6, 309, 316 Landes, David 55–58

Index 347
Latin America 1, 3, 67, 127–28, 140, 168, 171, modernisation theories 196–97, 205–7, 230
197, 199, 202, 204–7, 210–12, 214–18, monopolies 20, 31, 35–36, 43–45, 48, 50,
220–21, 224, 227, 231, 233, 236–38, 240, 113–14, 122, 124–25, 127–28, 142, 221–22,
242, 248–50, 253–55, 257, 261–62, 264, 224, 261, 274
275–76, 279–307, 309–12, 315–16 monopolising 107
laws of capitalist accumulation xvii, 15–20, Morales, Evo 128, 286
35–36, 79, 81–84, 87–96, 103, 125, 144, movements, fascist 147, 227
154, 190–92, 209, 266–278 Mowery, David 56
Leff, Enrique 150, 304 Mujica, José 128, 286
Lenin, Vladimir 14, 214, 216, 243 multipolarity 169, 255, 310
liberalism xii–Xiv, Xvi, Xviii, 10, 11, 17, 39–42, Mussolini, Benito 16
45, 49–52, 56, 59, 62, 67–70, 111, 120, 125,
126, 130, 131, 197 national-developmentalism 197, 199, 205,
List, Friedrich 11 211, 315
long waves 54, 71, 79–82 Negri, Toni 5
Lugo, Fernando 128, 286 neoliberalism 1, 3, 6, 9, 84–86, 102, 107, 111,
Lula da Silva, Luiz Ignacio 127, 286 123–29, 131–33, 138, 141, 143, 146, 174–75,
Lundvall, Bengt-Åke 37 177–78, 236–40, 245, 247, 252–53, 258,
Luxemburg, Rosa 14 276, 278–81, 283, 286, 292, 297, 302, 312,
314–15
Macri, Mauricio xiv, xx neoliberal model 3, 177, 236, 244, 255,
Maddison, Angus 39, 51, 53–55, 57, 63–64, 257–58, 275, 277, 279, 296–97, 299,
67, 110, 124, 139, 160–61, 169–70, 185, 199, 301–2, 312, 315–16
210, 237, 250, 254, 294, 297 Novais, Fernando 36
Maduro, Nicolas xx, 127 Nye, Joseph 5, 146, 184
Mandel, Ernest 55, 73, 78–80, 83–84
Mansfield, Edwin 116 Obama, Barack xiii, 128, 130–31, 146, 151, 163,
Mantega, Guido 263–64, 278 175, 178–82, 187–88
Mariátegui, José Carlos 220–21 Obrador, Manuel Lopez 280, 286
Marín, Barreda 184 oecd 63, 102–4, 111–16, 124, 129–30, 148,
Marini, Ruy Mauro 91, 118, 122, 170, 217, 168–69
221–24, 226, 235–36, 257–67, 269–71, Ohmae, Kenichi 5
276 organic core 116, 137, 238–40, 249–50, 275,
Martins, Carlos Eduardo 55, 83, 118, 152, 265, 307
275–76 Ortega, Daniel 128, 286
Marx, Karl xxvi, 3, 8, 14, 15, 17, 18, 20–24, 26, Osório, Jaime 266–267
36, 56, 87–96, 99, 101, 104, 115, 118, 121, overproduction 89, 113–14, 155
124, 125, 154, 184, 189, 190, 193, 214, 242,
257, 264–268, 270–274 Palma, Gabriel 264, 271, 278
Marxism 11–14, 17, 24, 66, 312 Paraguay xiv, xx, 171, 254, 281, 286
Marxist theory of dependency 232, 257, 267, Parry, John H. 48
270 Perez, Carlota 54–55, 78, 80–81
Mello, João Manuel Cardoso 189, 242–43 Piketti, Thomas 274
mercantilism 49–51 Pinochet, Augusto xviii, 132
Mészáros, István 95, 150 Plekhanov, Georgi Valentinovich 14
Mexico 61, 100, 140, 185, 235, 249, 254–55, Polanco, Hector-Diaz 264
269, 275, 279–80, 286–88, 291–92, Polanyi, Karl 147
294–96, 298–99, 302, 309 Popper, Karl 125
Mises, Ludwig Von xviii, 125–26 Prebisch, Raul 200, 202, 204

348 Index
production Schumpeter, Joseph 76–79, 214

average conditions of 268 sectors of capital 218, 255
capitalist mode of 2, 8, 17, 19, 23, 25, secular trends 1–2, 7, 18, 27–28, 33, 64, 70, 81,
35–36, 74–75, 87–88, 97–99, 105, 124, 87, 119–20, 134, 144, 155, 234, 248–49,
189, 221, 312–13 252, 312–13, 316
capitalist relations of 8, 17, 189 semi-periphery xviii, 25, 29, 37–39, 42, 54,
mode of 17–21, 23, 26–27, 34–35, 82, 92, 59–60, 62, 118, 123, 135, 138, 141, 180,
97–98, 115, 154, 188, 192, 242, 262 196–97, 248–250
relations of 21–23, 88, 96, 98–100, Serra, José 205, 218, 262–64, 269–271, 278
121, 154 Schröder, Gerhard 127, 130
production costs 5, 29, 45, 52, 70, 72–73, 78, Silver, Beverly xvi, 4, 7, 9, 20, 29, 45, 50–53,
81, 87, 99, 102, 111, 117, 198, 283 58–60, 68–70, 134, 148, 153, 180
productive capacity 52, 140, 258, 270 social returns of innovation 99, 115, 116, 117,
productive capital 114, 172, 189–90, 192, 228, 125, 134, 140
246 social sciences 1, 4–5, 7, 9, 11, 13, 15, 17, 19, 21,
productive forces 4, 8, 11, 17, 20–23, 25, 53, 23, 25, 68–69, 153, 197, 248, 311
90, 92–93, 95–99, 102, 104–5, 112, 116, 119, socialism xvi, 4, 7, 9, 20, 29, 45, 50–53,
134–36, 138, 147, 150, 153, 190, 221, 226, 58–60, 68–70, 68–70, 134, 148, 153, 180
230, 234–35, 255, 263, 286, 312, 315 Soete, Luc 78–81
productivity 33, 81, 89, 92, 94–95, 104–6, 110, South Africa xiii, 141
119, 121, 140, 150, 198, 203–5, 222–24, 232, South Korea 66, 137, 139–40, 148, 169, 171
235, 245, 247, 258, 263, 265, 267–69, Sotelo Valencia, Adrian 276
272–74, 309–10 Spanish Empire 30, 32, 46–48, 191
profit rates, falling 8, 17, 81–82, 88–89, 96, Stalin, Joseph 14, 72, 174
102, 109, 249, 267, 313 state, semi-peripheral 6, 38, 155
state capitalism 278–79
Reagan, Ronald 66, 110, 127, 144, 164, 175, 188, state intervention 35, 42, 65, 82–83, 127, 129,
284 145, 148, 154–55, 165, 208–9
realisation crises 82, 113–14, 226, 228–29 Stiglitz, Joseph 135
regulationists 2, 108–10, 112 Strange, Susan 6, 166, 184, 189
Reich, Robert 5 structures 1, 9, 12–13, 32, 34–35, 46, 54, 72, 75,
Ricardo, David 197–98 90, 98, 134, 145, 163, 213–15, 293, 313
Richta, Radovan xvi, 8, 14, 17, 22, 96–100, 154 subimperialism 261, 276–78
Rodríguez, Octavio 200 super-exploitation 3, 102–3, 105, 118–19, 122,
Rosenberg, Nathan 56 125, 135, 140, 144, 146, 223–25, 227, 230,
Rostow, Walt 206–7 232–33, 235, 238, 241, 249, 255, 257–58,
Rousseff, Dilma 127 260, 262–68, 270–71, 273–78, 283, 286,
Russia xiv, 50, 51, 60, 62, 128, 141, 168, 187, 289, 300–304, 306, 315–16
191–194 superprofits 35–36, 49, 113–14, 121, 185, 222,
291, 316
Sader, Emir 138, 185, 188, 254 superstructure 18, 22–23, 27, 35, 73, 75, 133,
Sanders, Bernie 183 312
Santos, Theotonio dos 8, 14, 22, 24, 60, 67, surplus 21, 26–28, 34, 78, 98, 129, 154, 177,
78, 81, 83, 95, 97, 125, 127, 149–50, 195, 189, 193, 201, 207, 219–20, 232, 259, 275,
199, 206, 211, 213, 219, 221–22, 224–27, 294
232, 234, 236, 262–63, 275, 278, 287, 293 surpluses 30, 33, 35, 45, 90, 94, 100, 169, 181,
Scandella, Luigi 43 193, 202, 210, 217, 219–21, 225, 233, 238,
Schacht, Hjalmar xix 241, 278–80, 291–93, 298–99, 302, 314

Index 349
surplus value 20, 36, 42, 88, 91, 93, 95, 100, use values 37–39, 44–45, 54, 90, 93, 95, 150,
103, 113, 117–18, 124–25, 141–42, 145, 186, 192, 226, 247, 268
189–90, 193, 209, 221–24, 258–59, 268, US hegemony 2–3, 38, 40, 42, 59, 61, 63–67,
273–74, 276, 313 109, 111, 113, 120, 128–29, 136, 138, 151–55,
absolute xxi, 89, 270 157, 159, 161, 163, 165, 167, 169, 171, 173,
appropriation of 42, 147, 189, 219, 224, 175–77, 181, 183–85, 187–89, 193–95,
273 237–38
extraordinary xvii, 87, 90, 99, 104, 113, US troops 109, 182, 187–88
121–22, 147, 155, 164–65, 222–24, 258–61, ussr 62, 66, 168, 196
266, 271, 274, 276
rate of 23, 87–90, 104, 118, 190, 259, 263, value 22, 35–37, 72–73, 75, 87–90, 92–94,
265, 268, 273–74 98–100, 111, 113, 117–19, 121–22, 132–33,
relative xxi, 89, 93, 105, 218, 224, 232, 258, 139–40, 142, 156, 164–65, 184, 192–93,
260, 262–63, 265–66, 270–76 221–23, 225, 235–36, 238, 254–55, 258,
surplus value production, crisis of 23, 103–4, 260, 263, 265, 267–69, 271–74, 288
112, 121 law of 8, 23–24, 42, 78, 100, 124–25, 133,
surplus value transfers 37, 269, 273 137–38, 142
systemic cycles 7, 18, 24, 35, 38, 40, 43–46, Venezuela 171, 185, 187, 247, 280–81, 286, 288,
50, 56, 59, 62, 64, 68–71, 81–82, 85–87, 303
102–3, 112, 123, 153–54, 158, 183–84, 190, Vietnam 66, 68, 84, 151, 172–73, 175–76, 186
249, 253, 313
Wallerstein, Immanuel 7, 10–11, 13, 19–20, 22,
Taiwan 38, 66–67, 100, 139–40, 169, 235 24, 26–34, 37–42, 44–47, 51, 60–61,
Tavares, Maria da Conceição 155, 190–91, 68–69, 95, 111, 119, 141–43, 145–46, 149,
193, 205, 242–44 153, 179, 249, 251–52
techno-scientific revolution x, xii, xvi, xvii, Weber, Max 34, 45, 211, 214–15, 261–62
xxi, xxvi, 8, 14, 22, 25, 63, 90, 96–100, Weffort Francisco 241
105, 113–119, 134, 140, 141, 154, 184, 235, welfare state 42, 59, 66, 69, 131, 133, 160
238, 247, 249, 276, 289–291, 307, 312, 313 Westphalia 29–30, 33, 48, 69, 174
technology, foreign 222–23, 259 working day 89, 95–96, 104–5, 113, 258–59,
Thatcher, Margaret 127 263, 271, 274
Third Way 120, 128–30, 177, 279 world system 2, 8–9, 13, 30, 34–36, 38–39,
Tocqueville, Alexis de 251 42, 44–45, 64, 68, 70, 97, 120, 123, 131–34,
Toyotism 91, 105–8, 110–13, 121 136–38, 147–49, 151, 153–55, 169–71,
Trotsky, Leon 73–74 174–75, 178–80, 197, 220, 248–49, 253,
Trump, Donald xiii–xvi, 131, 163, 181, 306, 311–12, 314, 316
183, 188 world system theories 23, 70, 78, 82, 158, 183,
197, 206, 239, 247–48, 312, 315
unasur xix–xx, 280
underdevelopment 171, 204, 208–9, 211–14, Yamada, Toshio 107–8
219, 228, 230, 240, 243–44, 264, 278
Zelaya, Manuel 128, 288


Dependency, Neoliberalism and Globalization in Latin America

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Dependency, Neoliberalism and Globalization in Latin America

Carlos Eduardo Martins - 978-90-04-41554-6

Critical Global Studies

The titles published in this series are listed at brill.com/cgs

Carlos Eduardo Martins - 978-90-04-41554-6

Carlos Eduardo Martins

Carlos Eduardo Martins - 978-90-04-41554-6

Cover illustration: Ronaldo Alves

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Names: Martins, Carlos Eduardo, author.

Copyright 2020 by Koninklijke Brill NV, Leiden, The Netherlands.

This book is printed on acid-free paper and produced in a sustainable manner.

Carlos Eduardo Martins - 978-90-04-41554-6

Carlos Eduardo Martins - 978-90-04-41554-6

1 Social Sciences and the Challenges of Globalization 4

2 The Modern World System and Capitalism: Origins,

3 Globalization and the Crisis of the Modern World System 97

4 The Impasses of US Hegemony: 21st Century Perspectives 152

Carlos Eduardo Martins - 978-90-04-41554-6

3 Hegemonic Crisis and Its Military Dimension 171

5 Dependency and Development in the Modern World System 196

6 Revisiting the Political Economy of Dependency in the

7 Latin America: Dependency, Neoliberalism and New Patterns of

Carlos Eduardo Martins - 978-90-04-41554-6

In Dependency, Neoliberalism and Globalization in Latin America, Carlos Edu-

Carlos Eduardo Martins - 978-90-04-41554-6

changes that produced the different phenomena encapsulated by such a broad

Carlos Eduardo Martins - 978-90-04-41554-6

en homenaje a Theotonio Dos Santos (The Challenges of Globalization: Essays

Carlos Eduardo Martins - 978-90-04-41554-6