Chris Harman

Zombie Capitalism

Part Three: The New Age of Global Instability

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Global Capital in the New Age

Bursting through borders

The decades of the great delusion were decades in which capital burst out of national confines in trade, investment and production. By 2007 international trade flows were 30 times greater than in 1950, while output was only eight times greater. [1] Foreign direct investment shot up: flows of it rising from $37 billion in 1982 to $1,200 billion in 2006 [2]; the cumulative stock of FDI rose from 4 percent of world gross domestic product in 1950 (less than half the 1913 figure) to 36 percent in 2007. [3] The direct organisation of production across national boundaries also took off in a way that had been very rare in the past and the multinational corporation became the generally accepted stereotype of the big capitalist enterprise. [4]

The movement of finance across national borders, which had fallen sharply since the crisis of the 1930s, now grew explosively, with governments dropping exchange controls as part of the more general process of deregulation. By the mid-1980s the trend was for “bankers to map out new strategies which, for most of them”, amounted “to establishing sizeable presences in the major financial centres, London, New York and Tokyo, and some secondary ones as well”. [5] There was a proliferation of banking mergers. The old-established Hong Kong and Shanghai Banking Corporation took over one of the “big five” British banks, relocated its headquarters to London and moved on to buy banks in a dozen countries. The two big Spanish banks, the Bank of Bilbao and Vizcaya, and the Bank of Santander, bought up a very large proportion of the banking systems of many Latin American countries, until they alone owned almost one third of the assets of the 20 biggest banks [6], and then branched out into other types of business, “investment banking, insurance and in particular participation in pension fund management”, acquiring “minority shares in some non-financial enterprises, basically in sectors where other Spanish investors are very active (telecommunications and energy)”. [7]

There was a parallel process of concentration of industrial activities across national borders. The huge firms that had emerged in the old industrial countries in the previous period, often under the tutelage of the state, were now able to dominate not only their national market but also carve out huge chunks of the world market. Their competitors could only survive if they looked to an international mobilisation of resources, that is, if they too became multinational, not only when it came to trade but also when it came to production. The most successful firms in many key industries became those with international development, production and marketing strategies, based upon buying up, merging with or establishing strategic alliances with firms in other countries.

In motors, the Japanese car firms established production facilities in the US, turning out more vehicles than the third biggest American firm, Chrysler; the nationalised French firm Renault began a series of acquisitions in the US, beginning with the small fourth US car firm American Motors; Volvo took over General Motors’ heavy truck production in the US; Ford and Volkswagen merged their car production in Brazil; Nissan built an assembly plant in North East England to produce hundreds of thousands of cars a year, while Honda bought a 20 percent stake in Rover. In tyres, the French firm Michelin made itself the world’s biggest producer by taking over Uniroyal-Goodrich in the US in 1988. The pattern continued into the 1990s and the early 2000s. Mercedes Benz took over Chrysler (before selling it again in 2007); Renault formed an “alliance” with Nissan (buying 44.5 percent of it, while Nissan bought 15 percent of Renault) with a joint chief executive; General Motors bought Saab, took 20 percent stakes in Suzuki, Subaru and Fiat, and acquired 42 percent of Daewoo; the Indian group Tata took over the Anglo-Dutch steel firm Corus (formed by a previous takeover of the privatised British Steel); half of China’s soaring exports were produced by corporations at least partly owned by Western multinationals; Chinese firm AVIC 1 was supplying the rudder for Boeing’s 787 Dreamliner and making bids for six auctioned off Airbus plants in Europe; Russia’s Aeroflot put in a bid for Alitalia. These are just a random sample of the wave of international takeovers and collaboration agreements that were reported by the Financial Times every day.

If the typical capitalist firm of the 1940s, 1950s or 1960s was one which played a dominant role in one national economy, at the beginning of the 21st century it was one that operated in a score or more countries – not merely selling outside its home country but producing there as well. The biggest deployed far more economic resources than many states. “29 of the world’s 100 largest economic entities are transnational corporations” [8], reported UNCTAD. The process of national firms branching out into the rest of the world was not confined to the advanced industrial countries. It affected the Third World and Newly Industrialising Countries where the statification of industry had previously tended to go even further than in the West, as we saw in Chapter Seven. It intensified with the restructuring of industry that took place in each crisis of these years as firms rationalised production, shut plants and merged with others.

Myths and realities

This whole process was baptised “globalisation” by the 1990s. It was bracketed together with neoliberalism as representing a whole new phase of capitalism – for enthusiasts a phase very different to any previously. They held not only that the world should be organised according to the free flows of capital, without any intervention by governments, but that this had already come about.

We lived, it was said, in the age of multinational (or sometimes transnational) capital, of firms moving production at will to wherever it could be done most cheaply. It was, some influential voices insisted, a world of “weightless” production [9], where computer software and the internet were much more important than “old fashioned metal-bashing” industries, and where the absolute mobility of capital had completely detached it from any dependence on states. This was an integral part of the new economic paradigm supposedly unleashing a new dynamism in the aftermath of the failures of Keynesianism, state direction and Soviet style “socialism”. “Nationalities of companies” were “becoming increasingly irrelevant’, declared the British Tory minister Kenneth Clark. [10] This was the age of “the stateless corporation”, declared Business Week. [11]

Many people who rejected the politics of mainstream globalisation theory nevertheless accepted many of its assumptions. So Viviane Forrester wrote of “the brand new world dominated by cybernetics, automation and revolutionary technologies” with “no real links with ‘the world of work’” [12]; Naomi Klein described “a system of footloose factories employing footloose workers” [13]; and John Holloway told of capital being able “to move from one side of the world to the other within seconds”. [14]

The vision of a global system in which states no longer played a central part had as its corollary the argument that the wars that had plagued most of the 20th century were a thing of the past. The world was entering a “new world order”, proclaimed George Bush senior after the collapse of the Eastern bloc and US victory in the first war against Iraq. [15] Francis Fukuyama gave such talk an academic gloss with his announcement of “an end to history”.

Even thinkers long associated with the left came to the conclusion that capital in the new period no longer needed the state, and therefore had turned its back on war. Nigel Harris wrote of “the weakening of the drive to war”, since “as capital and states become slightly dissociated, the pressures to world war are slightly weakened”. [16] Lash and Urry went even further and did not include any mention of military expenditure in their account of the “postmodern” world of “disorganised capitalism”. [17]

Lacking from all these varied assertions about globalisation was any real grasp of how the relations between states and capitals were really developing. For capitals were no more willing, or able, to break their relationships with states than they had been at the time of the First World War. Such relationships may have become more complex, but they retained their overwhelming importance.

This should have been most obvious in the case of productive capital. It simply could not be as mobile as globalisation theory contended. Factories and machinery, mines, docks, offices and so on still took years to build up, just as they had in the earlier period of capitalism, and could not be simply picked up and carted away. Sometimes a firm can move machinery and equipment. But this is usually an arduous process and, before it can be operated elsewhere, the firm has to recruit or train a sufficiently skilled workforce. In the interim, not only does the investment in the old buildings have to be written off, but there is no return on the investment in the machinery either. And, few productive processes are ever completely self-contained. They are rooted, as we saw in Chapter Four, in production complexes, dependent on inputs from outside and links to distribution networks. If a firm sets up a car plant, it has to ensure there are secure sources of nuts and bolts, steel of the right quality, a labour force with the right level of training, reliable electricity and water supplies, a trustworthy financial system, friendly bankers, and a road and rail network capable of shifting its finished products. It has to persuade other people, other firms or governments to provide these things, and the process of assembling them can take months or even years of bargaining, involving trial and error as well as forward planning. For this reason, when restructuring firms usually prefer the road of “gradualism” – moving piecemeal from old plant to new, keeping intact old supply and distribution networks, minimising the dislocation to the “complex” around them. So it took Ford nearly two years to implement its decision in 2000 to close down its assembly plant in Dagenham and move production elsewhere in Europe. When Cadbury Schweppes announced the “rationalisation” of its global operation including closures in June 2007, it said it expected it to take three years to implement.

Even with money capital there is no pure mobility. As Suzanne de Brunhoff noted:

Even though huge financial flows of mobile capital are daily circulating round the globe, a global single market of capital does not exist. There is no single world rate of interest and there are no single world prices for produced goods ... Financial assets are denominated in different currencies which are not “perfect substitutes”. [18]

Professor Dick Bryan made a similar point:

International finance provides a clear illustration of the centrality of nationality within global accumulation. The combination of satellite and computer technology has provided ... all the technical preconditions for the neoclassical “perfect market” of financial flows to equalise rates of return, transcending national boundaries. Yet ... finance maintains national characteristics. It does not move systematically so as to equalise savings and investment ... A global financial system comprised of nationally-designated currencies signals that globalisation cannot be devoid of a national dimension. [19]

Every year UNCTAD provides a list of the top 100 multinationals and their “transnationality index” – the proportion of their sales, assets and investments which are located outside their “home” country. These figures are sometimes said to show how little multinationals depend on a national base. But in fact they can be looked at another way. In 2003 the top 50 multinationals still relied on their home base for over half their business. And the 20 with the highest ratios of foreign sales were mostly from small, open economies such as Canada, Australia and Switzerland, or are members of the EU such as Finland, France, the UK, Germany and Sweden whose sales are oriented to close neighbours. None of the US multinationals figured in the list of the most international global firms. [20]

Average Transnationality of the world’s
largest transnational corporations (TNCs) 2003

Top 100 TNCs


Top 50 TNCs


Those based in


United States


United Kingdom








Small European countries


The proliferation of cross-border mergers did not mean that they represented the only, or even the dominant form of restructuring. They counted for only a quarter of all mergers [21] – and many were unsuccessful. [22] And only a small portion of global investment was across national borders. Tim Koechlin showed that although the stock of American FDI had “grown quite dramatically”, from “$32 billion in 1960 to $2,063 billion in 2004”, this represented “a relatively small share of all US investment”, with the ratio of foreign direct investment outflows to all investment at only 7.3 percent”. [23] For manufacturing, the ratio was higher, at 20.7 percent – “but was down on the figure of 35.4 percent in 1994”. [24] He concludes, “Although the investment process has become increasingly ‘global’ ... capital accumulation remains an essentially national phenomenon.” [25] What is more, foreign direct investment figures gave an exaggerated impression of the mobility of productive capacity, rather than of the ownership of it. UNCTAD figures bore out a point Riccardo Bellofiore made at the end of the 1990s. Foreign investment mostly involved buying up existing enterprises, not new ones, so that:

FDI flows in manufacturing are dominated by mergers and acquisitions ... rather than by the creation of new capacity: and a big share of FDI is in non-productive, speculative and financial ventures. [26]

Most multinationals concentrated their investments in a particular advanced industrial country and its neighbours, and then relied on the sheer scale of investment, research and development, and production there to provide an advantage over all competitors. The foreign investment that did take place was not necessarily “global” in its character. “Sixty-six percent of the output of US foreign affiliates” was “sold locally”, that is, within the boundaries of the particular country in which a particular affiliate was based. [27]

This was a trend which broke with the predominantly national basis of production without, however, turning into the global production stereotype. A multinational could seek to overcome obstacles to exporting to a particular country by establishing plants inside its borders – in a pattern which Ruigrok and van Tulder called glocalisation. [28] Even if it started off with “screwdriver plants” devoted simply to assembling components imported from the multinational’s home country, it often ended up turning to local firms to provide components. The multinational gained because local firms effectively became its satellites, supplying it with resources and fighting for its interests against its local or regional competitors. It might even welcome protectionist measures by the state its subsidiary was in, since that would protect its sales there from international competitors.

Globalisation theorists failed to recognise such developments. Yet they often tried to bolster their own case by referring to investments like those of Japanese motor companies in the US and Britain which were precisely along these lines. Similarly, they stressed the “flexible production” characteristic, for instance, of part of the Italian knitwear industry, and “just in time” production methods pioneered in Japan as typical of globalisation, although, as Michael Mann quite correctly noted, both implied localised or regional, rather than global, production. [29]

The “outsourcing” overseas by advanced country firms of particular parts of their production processes became an important phenomenon, but it was still a much more limited one than was widely believed. At the beginning of the 2000s, imported “material inputs” (including raw materials) accounted for 17.3 percent of total US output. [30] Koechlin estimated that “outsourcing” accounted “for somewhat less than 4.8 percent of US gross domestic purchases and somewhat less than 9 percent of apparent consumption of manufactured goods”. [31] Another study showed that the fall in “payroll employment in manufacturing” in the early 2000s had “not been caused by a flood of imports of either goods or services” but was:

primarily the result of inadequate growth of domestic demand in the presence of strong productivity growth... To the extent that trade did cause a loss of manufacturing jobs it was the weakness of US exports after 2000 and not imports that was responsible. [32]

The different configurations of global capital

Not only did the popular globalisation accounts overstate the degree of mobility of capital, they also provided a much distorted view of what that mobility involves. Alan. M. Rugman pointed out that of the big multinationals:

Very few are “global” firms, with a “global” strategy, defined as the ability to sell the same products and/or services around the world. Instead, nearly all the top 500 firms are regionally based in their home region of the “triad” of North America, the EU, or Asia ... [33]

Half of most global firms were still operating mainly in their home region market at the beginning of the 2000s – including Vivendi, Pernod Ricard, Thomson Corporation, Stora Enso and Akzo Nobel, Volvo, ABB and Philips. Only six multinationals operated in anything like a balanced way across at least three continents – Nestle, Holcim, Roche, Unilever, Diageo and British American Tobacco. [34] Most foreign-owned firms operating in European Union countries were based in other EU countries, where the predominant form of multinational ownership was “regional”, not global, with “US-controlled firms responsible for only 4.5 percent of European value added”. [35]

Research economists Georgios Chortareas and Theodore Pelagidis concluded in 2004:

The increase in international trade flows is predominantly confined within the three developed trade blocs of the global economy (the USA, the EU, Asia-Japan). A large part of the world continues to be excluded from the trade boom. The emerging reality is more a process of deepening regional integration (regionalisation) of particular groups/blocs of countries rather than a global increase in cross-border trade flows and production interdependence. [36]

“Trade”, they argued, “has not come to be spread over a wider range of countries, even compared with the past. It is enough to recall that developed countries’ imports from developing countries are still only about 2 percent of the combined GDP of the OECD.” [37] Their one exception was East Asia, which will have grown more important after their research at the turn of the century – by 2005 Chinese exports had expanded to reach to over 7 percent of the global total.

Investment flows were similarly concentrated within the “triad” of North America, Europe and Japan. In 2002–4 FDI flows into the European Union averaged about $300 billion a year. The total for the rest of the world – the “developing countries” – was only $180 billion, of which China (including Hong Kong) took two fifths, and Brazil and Mexico a fifth. Some 89 percent of the cumulative stock of FDI worldwide in 2004 was in the developed economies (roughly the same proportion as in 1990), and two thirds of that was in Europe. [38]

The pattern was not one of capital flowing effortlessly over a homogenous worldwide landscape. It was “lumpy”, concentrated in some countries and regions, in a way that was not fully grasped by either the crude globalisation view, by interpretations that stressed regional blocs, or by those who still spoke solely in terms of national economies. The empirical material could be looked at in different ways – just as a bottle can be seen as half full or half empty. But the reality of capitalism was that it could not be reduced to any one of these facets.

Different firms operated at different levels. Some, the majority in simple numerical terms, still operated within national economies from which they put out tentacles to see what they could gain by buying and selling to their neighbours. Others, smaller in number but enormously powerful, increasingly operated on a regional basis and reached out to pick up what they could elsewhere in the world. And a small minority saw their future in genuinely global terms. As capitals with each perspective bought and sold, manoeuvred to expand markets, searched for cheaper inputs and for more profitable places for investment, they both influenced each other and tripped over each other. The outcome was not some new model, but an ever shifting, kaleidoscopic pattern which was upset every time it seemed about to attain some fixity. “All that is solid” did “melt into air” as Marx had put it – but not in the way the crude globalisation theory held. For capital’s old companion, the state, entered into the process at every point.

States and capitals in the era of “globalisation”

All the advanced capitalist states still maintain historically very high levels of state expenditure, only surpassed historically during the time of total war. And although business often complains about the level of taxation, it never seriously suggests going back to the level of expenditure of a century ago. The reason is that capitals today, far from not needing states, require them as much as – if not more than – ever before.

They need them first because the continued concentration of capitals, in particular geographical locations, necessitates facilities that are not automatically provided by the operation of the market: police; judicial systems; a framework to limit the defrauding of some capitals by others; at least minimal regulation of the credit system; the provision of a more or less stable currency. Along with these they also need some of the functions fulfilled by the state during the period of the state-directed economy: regulation of the labour market; ensuring the reproduction of the next generation of labour power; the provision of an infrastructure for transport, communications, water and power; the supply of military contracts. Even the big multinationals, with half or more of their production and sales located abroad, still rely for much of their basic profitability on their operations in their home base, and therefore on what a state can provide for them.

Along with these functions there is continued massive support by any state for its capital’s domestic accumulation – and this was true long before the most recent turn to Keynesianism. So the Pentagon played a key role in resuscitating the American microchip industry in the late 1980s by putting pressure on firms to merge, to invest and to innovate [39] – and received strong industrial support:

“In today’s global economy some central vision is required”, Hackworth of Cirus Logic explained. “Somebody has to have an industrial strategy for this country”, agreed LSI Logic’s Corrigan. [40]

The result of that strategy was that by the end of the 1990s the world’s top semiconductor company was no longer NEC (Japanese) but Intel (American), with Motorola and Texas Instruments (both American) in third and fifth position. The US state also managed to bring about a similar rationalisation of the US aerospace industry, culminating in the merger of Boeing and McDonnell Douglas into a firm that controlled 60 percent of global civil aircraft sales, and a turnover in military aircraft production twice as great as the whole of the European industry. As the New York Times put it, “President Bill Clinton’s administration” had “largely succeeded in turning America’s military contractors into instruments of making the economy more competitive globally.” [41]

The internationalisation of firms’ operations, far from leading to less dependence on state support, increases it in one very important respect. They need protection for their global interests. A whole range of things become more important to them than in the early post-war decades: trade negotiations for access to new markets; exchange rates between currencies; the allocation of contracts by foreign governments; protection against expropriation of foreign assets; the defence of intellectual property rights; enforcement of foreign debt repayments. There is no world state to undertake such tasks. And so the power of any national state to force others to respect the interests of capitals based within it has become more important, not less.

Floating exchange rates between major currencies mean that the capacity of a government to influence the value of its own currency can have an enormous effect on the international competitiveness of firms operating within its boundaries. This was shown, for instance, by the “Plaza Accord” of 1985, when the US persuaded the European and Japanese governments to cooperate with it in forcing up the value of the yen against the dollar. In the aftermath sales of US firms internationally “grew at their fastest rate during the postwar period, shooting up at an annual rate of 10.6 percent between 1985 and 1990”. [42] It was shown again when the political decision of the government brought to office in the aftermath of the Argentinian uprising of December 2001 to devalue the currency by 75 percent gave a considerable boost to the industrial and agrarian capitals based in the country. [43]

A change in the exchange rate alters the amount of global value which a firm operating within a national economy gets in return for the labour it has used in producing commodities. As Dick Bryan has put it:

The exchange rate is a critical determinant of the distribution of surplus value amongst capitals ... Because nation-states are deemed responsible for the global commensurability of “their” currency, globalisation ... is not about eradicating the national dimension of accumulation. Indeed, globalisation is not even about the national dimension “hanging on” in a process of slow dissolution. Global accumulation is actually reproducing the national dimension, albeit in ways different to past eras. [44]

Again the same centrality of states is shown in international trade negotiations conducted through the WTO. They gather as the representatives of the capitals clustered together within their borders. Different firms have different interests and will look to the individual states over which they have influence to achieve these. This is just as true of firms who look to establishing global domination through free trade as of those with protectionist inclinations. All are dependent upon “their” state to persuade other states to let them get their way. So the US state is an essential weapon for firms like Microsoft, GlaxoSmithKlein or Monsanto in getting the enormous royalty payments that accrue from world recognition of their intellectual copyrights. Likewise the financial power it exercises through the IMF and the World Bank has safeguarded the foreign loans made by American banks – and has helped US-based industrial corporations gain from the crises facing smaller states, as when Ford and General Motors gained control of two of the Korean car companies at the time of the Asian crisis. [45]

Neither do international mergers show that the importance of states is declining. Part of their rationale is for a multinational to be able to extend its influence from its home state to other states. US and Japanese firms invest in West European countries so as to be able to “jump” national boundaries and so influence the policy of these states and the European Community from within: hence the spectacle in the early 1990s of US multinationals like Ford and General Motors lobbying European governments for measures to restrict the import of Japanese cars; hence also the sight of Japanese car firms negotiating for subsidies from the British state to set up car assembly plants. The giant company does not end its link with the state, but rather multiplies the number of states – and national capitalist networks – to which it is linked.

The continued importance of such connections is shown most vividly during financial and economic crises. For states alone can marshal the resources to stop a giant firm or bank going bust – and pulling down with it whole industrial or financial complexes. The history of such crises since the early 1970s has been a history of states bailing out stricken corporations or putting pressure on some firms for “lifeboat operations” to keep others afloat. Because the period of globalisation has been one of much greater crises than the post-war decades, the reliance of corporations on governments for such rescues has been much greater. As we will see in the next chapter, the transformation of the credit crunch of 2007 into the great banking crash of 2008 showed how great that reliance had become.

The overall conclusion has to be that corporations, whether multinational or other, do not regard a state which will defend their interests as some afterthought based on nostalgia for the past, but an urgent necessity flowing from their present day competitive situation.

The successor to the state capitalism of the mid-20th century has not been some non-state capitalism but rather a system in which capitals rely on “their” state as much as ever, but try to spread out beyond it to form links with capitals tied to other states. In the process, the system as a whole has become more chaotic. It is not as if individual firms have simple demands that they merely put on individual states. As a firm operates internationally, one of its divisions can establish relations with a particular state and its associated complex of capitals, even while other divisions of the same firm can be establishing other relations with other states and their complexes of capital. And particular state apparatuses can lose a lot of cohesion as their parts try to cope with the demands of different, competing capitals. The global agenda, the regional agenda, the national agenda and, in the cases of the larger states, the sub-national agenda (of particular localised geographical complexes of capital) clash with each other, producing frictions – on occasions deep schisms – within the national political-economic structure. This was what occurred during the very long crisis inside Britain’s traditional ruling class party, the Tories, through the 1990s and early 2000s: its feuds reflected a clash between those who saw British capitalism’s future as tied to the US and those who saw it as dependent on integration into Europe (a clash which itself reflected British capitalism’s position having the majority of its trade with Europe, but half its overseas investment in the US).

Those who see the national states as archaic hangovers from the past often speak of the emergence of an “international capitalist class” which will have as its correlate an “international capitalist state”. [46] They fail to take seriously Marx’s point that once “it is no longer a question of sharing profits, but of sharing losses ... practical brotherhood of the capitalist class ... transforms itself into a fight of hostile brothers”, the outcome of which is “decided by power and craftiness”. [47] And when it comes to the use of power, the national state is an instrument ready to hand. Interstate conflict, to a lesser or greater degree, is an inevitable outcome once economic competition becomes a matter of life and death for giant corporations. This is just as true today as in the time of Lenin and Bukharin, even if the interconnectedness of national, regional and global circuits of capital accumulation impacts on how the instrument is used.

Such applications of pressure by states on other states still requires the deployment of large “bodies of armed men”, backed up by prodigious expenditure on military hardware – alongside such “non-violent” methods as economic aid, trade embargoes, offers of privileged trading relationships and crude bribery. Much of the time the role can be passive rather than active. The force that sustains a certain level of influence does not need to be used so long as no one dares to challenge it – as with the Mutually Assured Destruction (MAD) doctrine between the USSR and the US which prevented either moving into the other’s European spheres of influence during the Cold War. Again force can play an indirect rather than a direct role as with the implicit US threat to the West European powers and Japan not to help them militarily during the Cold War years unless they acceded to US objectives. But the violence of the state remained a vital background factor in such cases. In this lies the continuity with the imperialism analysed by Lenin and Bukharin. Even today the rulers of Russia, China, India, Pakistan and North Korea – and for that matter Britain, France and the US – see possession of nuclear weapons as the ultimate defence against enemies.

The interaction between the great powers is not the peaceful concert of nations dreamt of by certain apostles of neoliberalism and free trade. There are contradictory interests, with military force a weapon of last resort for dealing with them. But there is still a difference with the first four decades of the 20th century. These culminated in wars which ravaged the heartlands of the great powers. Tensions since 1945 have led to massive accumulations of arms that could potentially be unleashed against the heartlands. But hot wars have been fought outside them, usually in the Third World.

One reason for this has been the “deterrent” effect, the fear that waging war on a nuclear power will lead to destruction of the whole domestic economy as well as most of its people. Another has been the very interpenetration of the advanced capitalist economies that puts pressure on states to exercise power outside their own boundaries. Few capitalists want their national state to destroy huge chunks of their property in other states – and most of it will be in other advanced capitalist countries.

This does not rule out war completely. The capitalist economy was highly internationalised in 1914, but this did not prevent all-out war. Again, in 1941, the presence of Ford factories and Coca-Cola outlets in Germany did not stop a US declaration of war after Pearl Harbor. But it does provide them with an incentive to avoid such conflicts if they can – and to settle their differences in less industrialised parts of the world. Hence the years since 1945 have been marked by war after war, but away from Western Europe, North America and Japan. And often the wars have been “proxy wars” involving local regimes to a greater or lesser extent beholden to, but not completely dependent on, particular great powers.

This was the logic which led the US in the 1980s to give tacit support to Iraq in its long war against Iran and to provide modern weaponry to the Mujahadin fighting the Russian occupation of Afghanistan. A similar logic worked itself out in the Balkans in the 1990s, when Austria’s attempt to gain from Slovenian independence from Yugoslavia led to Germany encouraging Croatian independence and then the US Bosnian independence, even though the result was bound to be bitter ethnic conflict.

The worst suffering from proxy wars has probably been in Africa. During the last decade and a half of the Cold War the US and the USSR backed rival sides in wars and civil wars as part of their attempts to gain a strategic advantage over each other. In the 1990s the US and France vied for influence in Central Africa. They backed rival sides in the war cum civil war that broke out in the border regions of Tanzania, Rwanda, Burundi and Congo-Zaire. They helped set in motion a catastrophe resulting overall in 3 or 4 million dead. In such situations freelance armies emerged whose commanders emulated the great imperial powers on a small scale by waging war in order to enrich themselves, and enriching themselves in order further to wage war. Imperialism meant encouragement to local rulers to engage in the bloodiest of wars and civil wars – and then occasionally the sending in of Western troops to enforce “peacekeeping” when the disorder reached such a scale as to threaten to damage Western interests. Contradictions which arise from the inter-imperialist antagonisms of the advanced capitalist states in this way wreak their worst havoc in the poorer parts of the world.

From the new period of crisis to the new imperialism

The pattern of the old imperialism was one of coalitions of states with comparable levels of economic and/or military capacity confronting each other. Today there is great unevenness even between the biggest states when it comes to their capacity to advance the interests of their domestically based capitals. At the top of the hierarchy is the state which has the greatest capacity for getting its way, the US. At the bottom are very weak states, hoping to be able to beg favours off those above them. The states in the middle alternatively squabble with each other over their position in the global pecking order and form ad hoc alliances in the hope of forcing concessions from those above them.

This cannot be a stable hierarchy. The unevenness in rates of economic growth (or sometimes contraction) in a period of recurrent crises means that the balance of forces between the different states is always changing, leading to rival displays of might between those who want to advance up the hierarchy and those who want to keep them in their place. Weak states get entangled in conflicts with neighbours which draw in powerful states to which they are allied, while powerful states see exemplary interventions in weak “rogue” states as a way of gaining advantage over other strong states.

The greatest source of instability has come from the attempts of the US to permanently cement its position at the front of the global pecking order. This seemed unassailable at the end of the Second World War. But in the decades that followed the US feared successive challenges from other states which were growing much more rapidly than it was. Russia was seen as an economic (as well as military) threat in the 1950s, however absurd that might seem today, Japan in the 1980s, and more recently China. The determination of the US state not to risk losing its position explains its massive levels of arms expenditure and the wars it has waged in the Global South.

The scale of the problems it faced first began to hit home in the late 1960s when the US ruling class found it could not afford the escalating cost of trying to achieve all-out victory in Vietnam. The history of US capitalism since has been very much a history of its attempts to restore its old position, amid a world marked by repeated economic crises and generally declining rates of accumulation. Its attempts have involved alternating phases of reducing arms spending as a proportion of total output in an effort to ease economic difficulties (from the late 1960s to the late 1970s, and from the late 1980s to 2000), and of increasing it in the belief that this could boost US global power and the performance of particular US corporations (in the early and mid-1980s and 2000–8). In all the phases the US state made some gains for the capitals based in it. In none of them were the gains sufficient fully to offset its long-term relative decline.

The collapse of the military challenge from the USSR and the economic challenge from Japan might have been expected to restore the confidence of the US ruling class in its global power in the 1990s. But its strategists had worries about the future. They reasoned that without the fear of the USSR to keep them in line, the European powers were more likely to resist US demands than in the past – as was shown by very hard bargaining at World Trade Organisation sessions. And in the East, Chinese growth was replacing the older challenge from Japan. Writing in 1994, Henry Kissinger expressed his unease:

The US is actually in no better position to dictate the global agenda unilaterally than it was at the beginning of the Cold War ... The United States will face economic competition of a kind it never experienced during the Cold War ... China is on the road to superpower status ... China’s GNP will approach that of the US by the end of the second decade of the 21st century. Long before that China’s shadow will fall over Asia. [48]

What is more, a quarter of a century of growing internationalisation of finance, investment, trade and production made US capitalism vulnerable to events beyond its borders. Its great multinational corporations needed some policy which would enable the might of the US state to exercise control over such events. Already towards the end of the Clinton Administration there were moves towards a more aggressive foreign policy designed to achieve this, with the push to expand NATO into Eastern Europe, but this did not go far enough for a group of Republican politicians, businessmen and academics – the infamous neoconservative “Project for a New American Century” formed in the late 1990s. Their starting point was the insistence that the way to stop “a decline in American power” was a return to a “Reaganite” policy based on large increases in defence spending, the building of a missile defence system, and action to deal with “threats” from “dictatorships” in China, Serbia, Iraq, Iran and North Korea. [49] “Having led the West to victory in the Cold War, America faces an opportunity and a challenge. We are in danger of squandering the opportunity and failing the challenge.” [50]

The Republican electoral victory of 2000 and then the national panic caused by the 9/11 destruction of the World Trade Centre gave them a chance to implement their policy.

It amounted in practice to further building up the military might of the US – and then using it to assert US global dominance against all comers. Increased arms spending and massive tax cuts for the rich were meant to pull the US out of recession, just as the “military Keynesianism” of Reagan had two decades before. Increased arms spending would lead to recovery from recession, to further military handouts to finance technical advances for computer, software or aviation corporations, and to an increased capacity to dictate policies to other ruling classes – and all paid for by even bigger investment flows into the US as it demonstrated its overriding power. The aim was for the US to more than compensate for losing its old lead in market competition by using the one thing it has that the other powers do not – overwhelming military might. It was an updated version of the logic of imperialism as described by Bukharin in the early 1920s, with the difference that the rival capitalist states were not going to be forced into subservience by wars directly against them, but by the display of the US’s capacity to wield global power through wars it and its client states waged in the Global South.

Hence the attack on Afghanistan and then, 18 months later, on Iraq. The “neocons” believed they had a perfect opportunity to demonstrate the sheer level of US military power and to increase control over the world’s number one raw material, oil. This would weaken the bargaining power of the West European states, Japan and China, since they would be at least partially dependent on the US for their supplies. The assumption was that the wars would be won by little more than a display of US airpower at very little cost. This seemed a viable way for achieving shared goals to those who ran US-based corporations, and the Democrats in Congress voted for war.

It was a gamble and by the spring of 2004 it was clear that the gamble was going seriously wrong. The US had taken control of Kabul and Baghdad easily enough. But its forces on the ground were not able to prevent the growth of resistance in Iraq – and of growing Iranian influence there. Within another two years it also faced serious resistance from a resurgent Taliban in Afghanistan.

The turn to military Keynesianism seemed at first to be successful in economic terms. There was an unexpectedly quick recovery from the recession of 2001–2: “Official military expenditures for 2001–2005 averaged 42 percent of gross non-residential private investment” and “official figures ... excluded much that should be included in military spending”. [51] All this provided markets, in the short term, for sections of US industry. But the high levels of military expenditure soon showed the same negative effects they had shown at the time of the Vietnam War and under the Reagan administrations. They increased economic demand without increasing overall international competitiveness and so caused ballooning trade as well as budget deficits. By 2006 the combination of escalating military costs and the risk of defeat in Iraq was worrying important sections of the ruling class. A 2006 report from the Iraq Study Group, headed by Republican Party heavyweight James Baker and Democratic Party heavyweight Lee Hamilton, bemoaned the loss of “blood and treasure” with an estimate of the costs to US capitalism of the Iraq venture of a massive £1,000 billion (equal to seven months output from the British economy). [52]

Meanwhile other states – and the capitals operating from them – were able to take advantage of the US’s perceived weakness to advance their own positions. The most important West European states, France and Germany, had refused to back the 2003 Iraq War, unlike the first Iraq War of 1991. The French state in particular saw a weakening of US influence in the Middle East as an opportunity to advance the interests of French capital in regions where its interests clashed with the US’s. China was able to benefit from the US entanglement in Iraq and Afghanistan to expand its own influence, particularly in Africa and Latin America. This went hand in hand with growing trade links, as it looked to mineral imports from Africa and agricultural imports from Brazil, Argentina and Chile. Soon Russia too was flexing its rather weaker muscles, as increased oil revenue allowed it to recover from the economic collapse of the previous decades and to exert pressure on some of the other former Soviet republics; Iran took advantage of the US’s setbacks to increase its leverage in Iraq and Lebanon; the BRICS formed an ad hoc alliance to advance their common trade interests in opposition to both the US and the EU, so paralysing the Doha round of trade negotiations from which US corporations had hoped to get even easier access to foreign markets. The US discovered that when three of its client states launched wars for objects it supported – Israel in Lebanon in 2006, Ethiopia in Somalia in 2007, Georgia against Ossetia in 2008 – it was not in a situation to stop them facing defeat.

Commentators who had not long before insisted the collapse of the USSR had created a “unipolar world” with one superpower were beginning to talk about “multipolarity”, with the US only able to get its way by making concessions to other powers. Some thought this meant a more peaceable world. But the multipolarity is a world of states and their associated capitals which have different interests and are out to impose them on the others when they get the chance. It is the multipolarity in which old imperialist imperatives are strengthened just as it becomes more difficult for them to be successful. It is a world, in short, beset by a multitude of contradictory pressures and compelled, therefore, to experience one convulsive political crisis after another. This became clear when the great economic delusion gave way to a great economic crisis.

* * *


1. WTO Annual Reports, 1998 and 2008.

2. UNCTAD Investment Brief, Number 1 (2007).

3. UNCTAD World Investment Report 2008 and International Monetary Fund, World Economic Outlook, October 2008, Database: Countries.

4. Multinational firms (e.g. ITT, Ford, Coca-Cola) had existed in the pre-war period. But they were not generally based upon integrated international research and production. So the British subsidiary of a US car firm would generally develop and market its own models independently of what happened in Detroit. Insofar as there was international organization of production, it was by firms based in the metropolitan countries controlling the output of foodstuffs and raw materials in the Third World, as for instance Unilever or Rio Tinto Zinc did.

5. Financial Times, Survey: World Banking, 22 May 1986.

6. A. Calderon and R. Casilda, The Spanish Banks Strategy in Latin America, CEPAL Review 70, 2000, pp. 78–79.

7. As above, p. 79.

8. UNCTAD press release, available at [no longer available online].

9. See, for a prime example of how such nonsense could become a fashionable commodity just before the last world recession, Charles Leadbetter’s much hyped book of the late 1990s, Living on Thin Air (Harmondsworth, Penguin, 2000).

10. Quoted in the Financial Times, 20 June 1988.

11. Business Week, 14 May 1990.

12. V. Forrester, The Economic Horror (London, Polity, 1999), pp. 18–19.

13. Naomi Klein, No Logo (London, Flamingo, 2000), p. 223.

14. John Holloway, Global Capital and the National State, in Werner Bonefeld and John Holloway, Global Capital, National State and the Politics of Money (New York, St Martin’s Press, 1995), p. 125. Holloway does at one point recognise that productive capital is less mobile than money capital, but then goes on to ignore the effect of this distinction on the relations between capitals and states.

15. Speech to Congress, 6 March 1991.

16. N. Harris, The End of the Third World (Harmondsworth, Penguin, 1987), p. 202.

17. Scott Lash and John Urry, The End of Organised Capitalism (London, Polity Press, 1987).

18. Suzanne de Brunhoff, Which Europe Do We Need Now? Which Can We Get? in Riccardo Bellofiore (ed.), Global Money, Capital Restructuring, and the Changing Patterns of Labour (Cheltenham, Edward Elgar, 1999), p. 50.

19. D. Bryan, Global Accumulation and Accounting for National Economic Identity, Review of Radical Political Economy, 33 (2001), pp. 57–77.

20. Alan M. Rugman and Alain Verbeke, Regional Multinationals and Triad Strategy, 2002. See For an important analysis of the “core firms” which have the most influence in national economies, see Douglas van den Berghe, Alan Muller and Rob van Tulder, Erasmus (S)coreboard of Core Companies (Rotterdam, Erasmus, 2001).

21. Gordon Platt, Cross-Border Mergers Show Rising Trend as Global Economy Expands, Global Finance, December 2004.

22. Sydney Finkelstein, Cross Border Mergers and Acquisitions, Dartmouth College, available at

23. Tim Koechlin, US Multinational Corporations and the Mobility of Productive Capital, A Sceptical View, Review of Radical Political Economy, 38:3 (2006), p. 375.

24. As above, p. 376.

25. As above, p. 374.

26. Riccardo Bellofiore, After Fordism, What? Capitalism at the End of the Century: Beyond the Myths, in Global Money, Capital Restructuring and the Changing Patterns of Labour (Edward Elgar, 1999), p. 16.

27. Tim Koechlin, US Multinational Corporations and the Mobility of Productive Capital, A Sceptical View, p. 374.

28. W. Ruigrok and R. van Tulder, The Logic of International Restructuring (London, Routledge, 1995).

29. M. Mann, As the Twentieth Century Ages, New Left Review, 214 (1995), p. 117.

30. Mary Amiti and Shang-Jin Wei, Service Offshoring, Productivity and Employment: Evidence from the United States, IMF Working Paper WP/05/238, p. 20.

31. Tim Koechlin, US Multinational Corporations and the Mobility of Productive Capital, A Skeptical View, p. 378.

32. Martin Neil Baily and Robert Z. Lawrence, What Happened to the Great US Job Machine? The Role of Trade and Offshoring, paper prepared for the Brookings Panel on Economic Activity, 9–10 September 2004, p. 3.

33. Alan M. Rugman, The Regional Multinationals (Cambridge, 2005).

34. Alan M. Rugman and Alain Verbeke, Regional Multinationals and Triad Strategy.

35. Michaela Grell, The Impact of Foreign-Controlled Enterprises in the EU, Eurostat 2007,

36. Georgios E Chortareas and Theodore Pelagidis, Trade Flows: A Facet of Regionalism or Globalisation?, in Cambridge Journal of Economics, 28 (2004), pp. 253–271.

37. As above.

38. Figures from UNCTAD, World Investment Report 2005, Annex, Table B3.

39. See Pentagon Takes Initiative in War Against Chip Imports, Financial Times, 27 January 1987.

40. Financial Times, 12 September 1990.

41. Article reprinted in International Herald Tribune, 17 December 1996.

42. Robert Brenner, The Economics of Global Turbulence, pp. 206–207.

43. For an excellent account of the Argentinian economy in this period, see Claudio Katz, El Giro de la Economia Argentina, Part One, available at

44. Dick Bryan, The Internationalisation of Capital, Cambridge Journal of Economics, 19 (1995), pp. 421–440.

45. Mark E. Manyin, South Korea-U.S. Economic Relations: Co-operation, Friction, and Future Prospects, CRS Report for Congress, July 2004. See, which contains a fascinating list of the clashes between the US and South Korean governments as each seeks to advance the economic interests of the firms operating from its national territories.

46. This, essentially, is the argument of William Robinson in The Theory of Global Capitalism (Baltimore, Johns Hopkins, 2004).

47. Marx, Capital, Volume Three, p. 248.

48. Henry Kissinger, Diplomacy (New York, Simon & Schuster, 1994), pp. 809 and 816.

49. Weekly Standard, 7 September 1997.

50. Project for the New American Century, Statement of Principle, 7 June 1997.

51. Fred Magdoff, The Explosion of Debt and Speculation, p. 5. Net physical investment by non-farm, non-financial corporate business in the US in 2006 amounted to $299 billion, the US military budget to $440 billion.

52. Iraq Study Group Report, 2006, available at

Last updated on 05 April 2020