The Economics of Empire


By Walden Bello

New Labor Forum
Fall 2003

In 1995, the World Trade Organization (WTO) was born. The nearly 20 trade agreements that underpinned the WTO were presented as a set of multilateral rules that would subject both the powerful and the weak to a common set of rules backed by an effective enforcement apparatus. In the WTO, it was claimed, the powerful United States and lowly Rwanda had exactly the same number of votes: one.

The Crisis of the Globalist Project

Now the triumphalism of those earlier years is gone. Talks at the WTO's fifth Ministerial in Cancun collapsed, and the organization is in gridlock. A massive obstacle to restarting negotiations is the refusal of the United States and the European Union (EU) to cut their massive subsidies in agriculture and their insistence, against widespread resistance from developing countries, on bringing non- trade issues such as investment and government procurement into the ambit of the WTO. Meanwhile, Washington and Brussels continue to be separated by a whole range of issues, including the EU's moratorium on genetically modified foods. Developing countries, some once hopeful that the WTO would in fact bring more equity to global trade, unanimously agree that most of what they have reaped from WTO membership are costs, not benefits.

What happened? In a word, Empire. It turns out that globalization and U.S. unilteralism don't mix. But first, some notes on globalization and the globalist project.

Three Moments of the Crisis of Globalization

There have been three moments in the deepening crisis of the globalist project. The first was the Asian financial crisis of 1997. This event, which laid low the proud "tigers" of East Asia, revealed that one of the key tenets of globalization-the liberalization of the capital account to promote freer flows of capital, especially finance or speculative capital-could be profoundly destabilizing. This was clearly shown when, in just a few weeks' time, one million people in Thailand and 21 million in Indonesia were pushed below the poverty line.[i] The ambitious enterprise of subjecting some 100 developing economies to "structural adjustment" resulted in economic stagnation, and increased poverty and inequality.

Shortly after the Asian financial crisis, key intellectual defenders of the neoclassical free market model began leaving the fold-among them Jeffrey Sachs, noted earlier for his advocacy of "free market" shock treatment in Eastern Europe in the early 1990's; Joseph Stiglitz, former chief economist of the World Bank; Columbia Professor Jagdish Bhagwati, who called for global controls on capital flows; and financier George Soros, who condemned the lack of controls in the global financial system that had enriched him.

The second moment of the crisis of the globalist project was the collapse of the third ministerial of the WTO in Seattle in December 1999, which was the fatal intersection of three streams of discontent:
- Developing countries who resented the inequities of the Uruguay Round agreements that they felt compelled to sign in 1995.
- Opposition from myriad sectors of global civil society.
- Unresolved trade conflicts between the EU and the United States, especially in agriculture.

The third moment of the crisis was the collapse of the stock market and the end of the Clinton boom. The crash was related to overcapacity in the industrial sector, the most glaring example being in the troubled telecommunications sector, where only 2.5 percent of installed capacity globally was being utilized. This stagnation of the real economy led to capital being shifted to the financial sector, resulting in the dizzying rise in share values. But since profitability in the financial sector cannot deviate too far from the profitability of the real economy, a collapse of stock values was inevitable. This occurred in March 2001, leading to prolonged stagnation and the onset of deflation.

The New Economics of George W. Bush

The globalist corporate project expressed the common interest of the global capitalist elites, but did not eliminate competition among the national elites. As Robert Brenner has pointed out, in the mid-1990's, the Clinton administration pushed a strong dollar policy to stimulate the recovery of the Japanese and German economies, so that they could serve as markets for U.S. goods and services. The earlier, more nationalist Reagan administration, on the other hand, had employed a weak dollar policy to regain competitiveness for the U.S. economy at the expense of the Japanese and German economies.[ii] With the George W. Bush administration, we are back to the weak dollar and other economic policies that are meant to revive the U.S. economy at the expense of the other center economies. Several features of this approach are worth stressing:

- Bush's political economy is very wary of a process of globalization that is not managed by a U.S. state.
- The Bush administration is wary of multilateral global economic governance. Its growing ambivalence towards the WTO stems from the fact that the United States has lost a number of rulings there.
- For the Bush people, strategic power is the ultimate modality of power. Economic power is a means to achieve strategic power. The globalist approach to China, for instance, emphasizes an engagement with China as an investment area and market for U.S. capital. The nationalists, however, see China mainly as a strategic enemy to be contained.

If these are seen as the premises for action, then the following prominent elements of recent U.S. economic policy make sense:

- Achieving control over Middle East oil. This was clearly aimed partly at Europe, but perhaps the more strategic goal was to control access to the region's resources by energy poor China.
- Aggressive protectionism in trade and investment matters. One of the most brazen protectionist acts by the United States is its stymieing of WTO negotiations over vital matters of public health. On behalf of the powerful pharmaceutical lobby, it staunchly resists the loosening of patent rights to drugs on all but three diseases.
- Incorporating strategic considerations into trade agreements. In a recent speech, U.S. Trade Representative Robert Zoellick stated explicitly that "countries that seek free trade agreements with the United States must pass muster on more than trade and economic criteria in order to be eligible. At a minimum, these countries must cooperate with the United States on its foreign policy and national security goals, as part of 13 criteria that will guide the U.S. selection of potential FTAA partners."
- Manipulation of the dollar's value to force rival industrial economies to shoulder costs, thereby regaining competitiveness for the US economy. This is a clear effort to revive the U.S. economy at the expense of the European Union and other center economies.
- Manipulation of multilateral agencies to push the interests of U.S. capital. This is more readily done at the World Bank and the IMF, where U.S. dominance is more effectively institutionalized, than at the WTO. For instance, the SDRM (Sovereign Debt Restructuring Mechanism), proposed by the IMF to help developing countries restructure their debt, was vetoed by the U.S. Treasury in the interest of U.S. banks, though it had the support of many European governments.[iii]

The Economics and Politics of Overextension

- Without legitimacy, imperial management is inherently unstable. The Roman Empire, for example, solved its problem of legitimacy politically, by extending Roman citizenship to ruling groups and non-slave peoples throughout the empire. Combined with a vision of the empire providing peace and prosperity for all created that intangible but essential moral element called legitimacy.

Extension of citizenship has never played a role in the U.S. imperial order. In the post-World War II period, during its struggle with communism, Washington did come up with a political formula to legitimize its global reach. The two elements of this formula were multilateralism as a system of global governance and liberal democracy. Today, however, Washington or Westminster-type liberal democracy is in trouble throughout the developing world, where it has been reduced to a faí§ade for oligarchic rule. With no moral vision to bind the global majority to the imperial center, this mode of imperial management can only inspire one thing: resistance.

The great problem for unilateralism is overextension, or a mismatch between the goals of the United States and the resources needed to accomplish these goals. Overextension is relative, that is, it is to a great degree a function of resistance. Among the key indicators of overextension are the following:

- the inflaming of Arab and Muslim sentiment in the Middle East, South Asia, and Southeast Asia, resulting in massive ideological gains for Islamic fundamentalists;
- the collapse of the Cold War Atlantic Alliance and the emergence of a new countervailing alliance, with Germany and France at the center of it;
- the forging of a powerful global civil society movement against US hegemony;
- the coming to power of anti-neoliberal, anti-U.S. movements in South America;
- an increasingly negative impact of militarism on the U.S. economy, as military spending becomes dependent on deficit spending, and deficit spending become more and more dependent on financing from foreign sources.

In conclusion, the globalist project is in crisis. Whether it can make a comeback via a Democratic or Liberal Republican presidency should not be ruled out, especially since there are influential globalist voices in the U.S. business community-among them George Soros- that are voicing opposition to the unilateralist thrust of the Bush administration.[iv] This, however, is unlikely, and unilateralism will reign for some time to come. We must have a healthy respect for U.S. power, but neither must we overestimate it. The signs are there that the U.S. is seriously overextended and what appear to be manifestations of strength might in fact signal weakness strategically.

Walden Bello is professor of sociology and public administration at the University of the Philippines, and executive director of the Bangkok-based Focus on the Global South.

[i] Jacques-Chai Chomthongdi, "The IMF's Asian Legacy," in Prague 2000: Why We Need to Decommission the IMF and the World Bank (Bangkok: Focus on the Global South, 2000), pp.18, 22

[ii] See Robert Brenner, The Boom and the Bubble (New York: Verso, 2002), pp. 128-133.

[iii] For the sharpening conflicts between the US Treasury Department and IMF officials, see Nicola Bullard, "The Puppet Master Shows his Hand," Focus on Trade, April 2002 (

[iv] See George Soros, "America's Role in the World," Speech at the Paul H. Nitze School of Advanced International Studies, Washington, DC, March 7, 2003. Noting that he was for intervention in the Balkans, including a "NATO intervention without UN authorization," Soros denounces the war with Iraq on the grounds that it stems from a fundamentalism that is unsound and wreaking havoc with the US' relations with the rest of the world. The arguments he musters are those heard not only in liberal Democratic Party circles in Washington but also in "pragmatic" Republican Party circles and Wall Street.

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