America’s Neoliberal Financialization Policy vs. China’s Industrial Socialism

America’s Neoliberal Financialization Policy vs. China’s Industrial Socialism

April 15, 2021

By Michael Hudson and posted with special permission

Nearly half a millennium ago Niccolo Machiavelli’s The Prince described three options for how a conquering power might treat states that it defeated in war but that “have been accustomed to live under their own laws and in freedom: … the first is to ruin them, the next is to reside there in person, the third is to permit them to live under their own laws, drawing a tribute, and establishing within it an oligarchy which will keep it friendly to you.”[1]

Machiavelli preferred the first option, citing Rome’s destruction of Carthage. That is what the United States did to Iraq and Libya after 2001. But in today’s New Cold War the mode of destruction is largely economic, via trade and financial sanctions such as the United States has imposed on China, Russia, Iran, Venezuela and other designated adversaries. The idea is to deny them key inputs, above all in essential technology and information processing, raw materials, and access to bank and financial connections, such as U.S. threats to expel Russia from the SWIFT bank-clearing system.

The second option is to occupy rivals. This is done only partially by the troops in America’s 800 military bases abroad. But the usual, more efficient occupation is by U.S. corporate takeovers of their basic infrastructure, owning their most lucrative assets and remitting their revenue back to the imperial core.

President Trump said that he wanted to seize Iraq’s and Syria’s oil as reparations for the cost of destroying their society. His successor, Joe Biden, sought in 2021 to appoint Hillary Clinton’s loyalist Neera Tanden to head the government’s Office of Management and Budget (OMB). She had urged that America should make Libya turn over its vast oil reserves as reparations for the cost of destroying its society. “We have a giant deficit. They have a lot of oil. Most Americans would choose not to engage in the world because of that deficit. If we want to continue to engage in the world, gestures like having oil rich countries partially pay us back doesn’t seem crazy to me.”[2]

U.S. strategists have preferred Machiavelli’s third option: To leave the defeated adversary nominally independent but to rule via client oligarchies. President Jimmy Carter’s national-security advisor Zbigniew Brzezinski referred to them as “vassals,” in the classical medieval meaning of demanding loyalty to their American patrons, with a common interest in seeing the subject economy privatized, financialized, taxed and passed on to the United States for its patronage and support, based on a mutuality of interest against local democratic assertion of nationalistic self-reliance and keeping the economic surplus at home to promote domestic prosperity instead of being sent abroad.

That policy of privatization by a client oligarchy with its own source of wealth based on the U.S. orbit is what American neoliberal diplomacy accomplished in the former Soviet economies after 1991 to secure its Cold War victory over Soviet Communism. The way in which client oligarchies were created was a grabitization that utterly disrupted the economic interconnections integrating the economies. “To put it in a terminology that harkens back to the more brutal age of ancient empires,” Brzezinski explained, “the three grand imperatives of imperial geostrategy are to prevent collusion and maintain security dependence among the vassals, to keep tributaries pliant and protected and to keep the barbarians from coming together.”[3]

After reducing Germany and Japan to vassalage after defeating them in World War II, U.S. diplomacy quickly reduced the Britain and its imperial sterling area to vassalage by 1946, followed in due course by the rest of Western Europe and its former colonies. The next step was to isolate Russia and China, while keeping “the barbarians from coming together.” If they were to join up, warned Mr. Brzezinski, “the United States may have to determine how to cope with regional coalitions that seek to push America out of Eurasia, thereby threatening America’s status as a global power.”[4]

By 2016, Brzezinski saw Pax Americana unravelling from its failure to achieve these aims. He acknowledged that the United States “is no longer the globally imperial power.”[5] That is what has motivated its increasing antagonism toward China and Russia, along with Iran and Venezuela.

TRANSITION: the problem was not Russia, whose Communist nomenklatura let their country be ruled by a Western-oriented kleptocracy, but China. The U.S.-China confrontation is not simply a national rivalry, but a conflict of economic and social systems. The reason why today’s world is being plunged into an economic and near-military Cold War 2.0 is to be found in the prospect of socialist control of what Western economies since classical antiquity have treated as privately owned rent-yielding assets: money and banking (along with the rules governing debt and foreclosure), land and natural resources, and infrastructure monopolies.

This contrast in whether money and credit, land and natural monopolies will be privatized and duly concentrated in the hands of a rentier oligarchy or used to promote general prosperity and growth has basically become one of finance capitalism and socialism. Yet in its broadest terms this conflict existed already 2500 years ago. in the contrast between Near Eastern kingship and the Greek and Roman oligarchies. These oligarchies, ostensibly democratic in superficial political form and sanctimonious ideology, fought against the concept of kingship. The source of that opposition was that royal power – or that of domestic “tyrants” – might sponsor what Greek and Roman democratic reformers were advocating: cancellation of debts to save populations from being reduced to debt bondage and dependency (and ultimately to serfdom), and redistribution of lands to prevent its ownership from becoming polarized and concentrated in the hands of creditors and-landlords.

From today’s U.S. vantage point, that polarization is the basic dynamic of today’s U.S.-sponsored neoliberalism. China and Russia are existential threats to the global expansion of financialized rentier wealth. Today’s Cold War 2.0 aims to deter China and potentially other counties from socializing their financial systems, land and natural resources, and keeping infrastructure utilities public to prevent their being monopolized in private hands to siphon off economic rents at the expense of productive investment in economic growth.

The United States hoped that China might be as gullible as the Soviet Union and adopt neoliberal policy permitting its wealth to be privatized and turned into rent-extracting privileges, to be sold off to Americans. “What the free world expected when it welcomed China into the free trade body [the World Trade Organization] in 2001,” explained Clyde V. Prestowitz Jr, trade advisor in the Reagan administration, was that, “from the time of Deng Xiaoping’s adoption of some market methods in 1979 and especially after the collapse of the Soviet Union in 1992 … increased trade with and investment in China would inevitably lead to the marketization of its economy, the demise of its state-owned enterprises.”[6]

But instead of adopting market-based neoliberalism, Mr. Prestowitz complained, China’s government supported industrial investment and kept money and debt control in its own hands. This government control was “at odds with the liberal, rules-based global system” along the neoliberal lines that had been imposed on the former Soviet economies after 1991. “More fundamentally,” Prestowitz summed up:

China’s economy is incompatible with the main premises of the global economic system embodied today in the World Trade Organization, the International Monetary Fund, the World Bank, and a long list of other free trade agreements. These pacts assume economies that are primarily market based with the role of the state circumscribed and micro-economic decisions largely left to private interests operating under a rule of law. This system never anticipated an economy like China’s in which state-owned enterprises account for one-third of production; the fusion of the civilian economy with the strategic-military economy is a government necessity; five year economic plans guide investment to targeted sectors; an eternally dominant political party names the CEOs of a third or more of major corporations and has established party cells in every significant company; the value of the currency is managed, corporate and personal data are minutely collected by the government to be used for economic and political control; and international trade is subject to being weaponized at any moment for strategic ends.

This is jaw-dropping hypocrisy – as if the U.S. civilian economy is not fused with its own military-industrial complex, and does not manage its currency or weaponize its international trade as a means of achieving strategic ends. It is a case of the pot calling the kettle black, a fantasy depicting American industry as being independent of government. In fact, Prestowitz urged that “Biden should invoke the Defense Production Act to direct increased U.S.-based production of critical goods such as medicines, semiconductors, and solar panels.”

While U.S. trade strategists juxtapose American “democracy” and the Free World to Chinese autocracy, the major conflict between the United States and China has been the role of government support for industry. American industry grew strong in the 19th century by government support, just as China is now providing. That was the doctrine of industrial capitalism, after all. But as the U.S. economy has become financialized, it has de-industrialized. China has shown itself to be aware of the risks in financialization, and has taken measures to attempt to contain it. That has helped it achieve what used to be the U.S. ideal of providing low-priced basic infrastructure services.

Here is the U.S. policy dilemma: Its government is supporting industrial rivalry with China, but also supports financialization and privatization of the domestic economy – the very policy that it has used to control “vassal” countries and extract their economic surplus by rent-seeking.

Why U.S. finance capitalism treats China’s socialist economy as an existential treat

Financialized industrial capital wants a strong state to serve itself, but not to serve labor, consumers, the environment or long-term social progress at the cost of eroding profits and rents.

U.S. attempts to globalize this neoliberal policy are driving China to resist Western financialization. Its success provides other countries with an object lesson of why to avoid financialization and rent-seeking that adds to the economy’s overhead and hence its cost of living and doing business.

China also is providing an object lesson in how to protect its economy and that of its allies from foreign sanctions and related destabilization. Its most basic response has been to prevent an independent domestic or foreign-backed oligarchy from emerging. That has been one first and foremost by maintaining government control of finance and credit, property and land tenure policy in government hands with a long-term plan in mind.

Looking back over the course of history, this retention is how Bronze Age Near Eastern rulers prevented an oligarchy from emerging to threaten Near Eastern palatial economies. It is a tradition that persisted down through Byzantine times, taxing large aggregations of wealth to prevent a rivalry with the palace and its protection of a broad prosperity and distribution of self-support land.

China also is protecting its economy from U.S.-backed trade and financial sanctions and economic disruption by aiming at self-sufficiency in essentials. That involves technological independence and ability to provide enough food and energy resources to support an economy that can function in isolation from the unipolar U.S. bloc. It also involves decoupling from the U.S. dollar and from banking systems linked to it, and hence from U.S. ability to impose financial sanctions. Associated with this aim is creation of a domestic computerized alternative to the SWIFT bank-clearing system.

The dollar still accounts for 80 percent of all global transactions, but less than half of today’s Sino-Russian trade, and the proportion is declining, especially as Russian firms avoid dollarized payments or accounts from being seized by U.S. sanctions.

These protective moves limit the U.S. threat to Machiavelli’s first option: destroy the world if it does not submit to U.S.-sponsored financialized rent extraction. But as Vladimir Putin has framed matters: “Who would want to live in a world without Russia?”

Kin Chi: My quick comment: The USA surely would want to destroy its rival, taking the first option. But it knows it is impossible to succeed, even in the case of Russia, and not to mention China. Thus it hopes for the rival to disintegrate from within, or for substantial interest blocs from within to be complicit with US interests. Hence we need to assess how Russia and China are reacting to this challenge, given that there are multiple contesting forces within each country. And that is also why we have been very concerned with pro-US neo-liberal political economists and policy-makers in these two countries.

I agree with you that China has put much investment into infrastructure and industry. However, we have been concerned with China’s financialization moves. Hence your statement that “China has avoided financialization” may not be the actual case, as various moves have been taken in financialization, but we can say that China seems to be aware of the risks in financialization, and has taken measures to attempt to contain it, causing discontent from US financial interests which would want to see China going further down the road.

It is interesting that yesterday, the White House expressed concern over the China-Iraq use of digital RMB to settle oil accounts as this would be beyond US monitoring of transactions.

  1. Niccolo Machiavelli, The Prince (1532), Chapter 5: “Concerning the way to govern cities or principalities which lived under their own laws before they were annexed.” 
  2. Neera Tanden, “Should Libya pay us back?” memo to Faiz Shakir, Peter Juul, Benjamin Armbruster and NSIP Core, October 21, 2011. Mr. Shakir, to his credit, wrote back: “If we think we can make money off an incursion, we’ll do it? That’s a serious policy/messaging/moral problem for our foreign policy I think.” As president of the Center for American Progress, Tanden backed a 2010 proposal to cut Social Security benefits, reflecting the long-term Obama-Clinton objective of fiscal austerity at home as well as abroad. 
  3. Zbigniew Brzezinski, The Grand Chessboard: American Primacy and its Geostrategic Imperatives (New York: 1997), p. 40. See the discussion by Pepe Escobar, “For Leviathan, It’s So Cold in Alaska,” Unz.com, March 18, 2021. 
  4. Brzezinski, ibid., p. 55. 
  5. Brzezinski, “Towards a Global Realignment,” The American Interest (April 17, 2016) For a discussion see Mike Whitney, “The Broken Checkboard: Brzezinski Gives Up on Empire,” Counterpunch, August 25, 2016. 
  6. Clyde Prestowitz, “Blow Up the Global Trading System, Washington Monthly, March 24, 2021.. 

The Immaturity Of American Concepts

The Immaturity Of American Concepts

by Denis A. Conroy for the Saker blog

One imagines… from outside of America at least…that the political system there, robust one year, retro the next, is on its way to drowning in a sea of vitriolic comeuppance. Half the population think Donald Trump is a buffoon while the other half think the Donald is o.k. But what we overlook is the fact that the population of America living within the aegis of casino capitalism has produced…per se…the conditions for buffoonery. It appears that the working-and middle-class were too busy lapping up dollar benefits to notice that global capitalism had allowed an international corporate class to acquire massive political power across the nations…neo-conservative doctrines arrived to privatise fruition…and the people too immature to understand what was happening.

But the truth of the matter is that American predatory practices are accepted as the norm by the population so long as they get a piece of the action. They are fine with that so long as the ‘trickle-down-effect’ of wealth continues to work for them. They are fine with everything their government does so long as they make money. They are even fine with their government’s foreign policy programs which demonise foreign competitors before destroying their infrastructure and systems of government. ‘To the victor goes the spoils’ factor that they benefit from has become the modus operandi of the world’s richest ‘democracy’ doing it for oligarchs and dictators who basically abjure the concept of democracy.

The systemic roots of degeneracy were much in evidence, but a glib population went along for the ride…as long as Corporate America and the military could impose their own concept of maturation on the system, things would come to fruition. Dollars would keep coming. The people had been indoctrinated into believing that might was right. Those among us who might challenge the inhospitable hegemonic pretentions of the power elites could be restrained. The rhetorical harbingers of American style progress…those who controlled the wealth of the nation…would in time align themselves with the House of Saud, the House of Abraham and the House of Christian Evangelism. Their respective muses manufactured metaphysical chicanery to keep their communities from becoming free from their cant. Political thinking had to be privatized.

But what came into being in America was a brand of ‘democracy’ which professed an aversion to public ownership, public accountability and anything and everything relating to any form of public scrutiny. It would become the ‘stuff’ of American culture long before Margaret Thatcher distilled the privatisation factor for neo-con-speak with such statements as, “There is no such thing as Society, there are individual men and women, and there are families”. She also said, “As God once said, and I think rightly” …!!…which leaves one to wonder if privatising morality is a good thing, as the energies and programming that go into self-gratification must inevitably conform to practices that escape the notice of the public. Was Maggie onto something…a recipe for corporate greatness perhaps…when she said, “You don’t tell deliberate lies, but sometimes you have to be evasive”.

So, on with the motley; isn’t Western capitalism an outcrop of European colonialism? Isn’t corporate jingo-speak the language of exploitation? Isn’t it cute, though inexplicably absurd, that Americans mistook Shylock for Santa Claus.

Evidently the elite operate on the basis that the ‘people’ are too immature to comprehend the concept of democracy…which means that they are vulnerable when ‘democracy’ from above is imposed on them. It was Margaret Thatcher who presaged The War on Terror with her statement, “All attempts to destroy democracy by terrorism will fail. It must be business-as-usual”. This said, business as usual was heating up the planet as was Margaret’s rhetoric.

So, when Donald Trump won the presidency, the business that is the business of the two-party system experienced an upping of the ante when the new chief deal-maker began pouring ever more toxicity into the swamp by nationalising his emotions per twitter twaddle. Fear and loathing had now reached such levels that it threatened to deflect the public from the real issues which were parasitism, inequality and evasiveness…the narcissism that cannibalises what is left of the American soul.

The red and blue fight involving the Republican and Democratic parties, hardly disguise the level of hatred that runs through the veins of the monochromatic American political beast that has been nurtured on dollars. The twin-headed beast has become a threat to the well-being of the entire globe.

From the European and Middle Eastern wombs came concepts of the hoary hegemonic kind that had roots in hoary religious tomes spewing forth monochromatic texts dealing with identity and ownership of truth. Over time becoming the boundaries that defined states. The British Crown, claimed that much of the world was their backyard, believing that the sun never set upon its empire. From the American ‘crown’ came the belief that God gave them the engineering skills to revamp his creation, garrison the globe with military bases, engineer wars for profit while celebrating whiteness, and generally fuck-over anyone who disagreed with them, be they climate scientists or the more sentient among the population who questioned notions of maturity.

But the strangest engineering feat of all was the creation of a coalition of the willing…the children of Western enlightenment no less, the white educated class who believed that they, and only they, possessed mature knowhow that would save the developing world from itself. In time it would become known as the white man’s burden and cost the natives of far-flung lands dearly.

But when America succeeded Britain in the role of super-grandee rearranging the complexion of the oil rich Middle East, it did precisely what its predecessor had done…suppress the aspirations of the various people who were seeking liberation from oppression by supporting dictators amenable to the interests of these latter-day colonists. To establish a hegemonic system loyal to the interests of Western banking, the petro-dollar system was implemented so as to give the emerging empire currency primacy and control over the vital interests of large parts of the globe.

But what defines the corporate mind is evasiveness. The selective particularism of the established news outlets demonstrate how active support for obtuse lesser-evil concepts can generate negative energy on both sides of the political equation for the purpose of giving identity politics ad hominem status by denigrating the character of entire groups. An ugly red versus blue spat roils the political waters as either side presents its case for doing the business of America. Degeneration had been an American weapon of export till it arrived back in the homeland as blowback.

But it is the business of America that throws a shadow across the globe. Specious killing has become its bottom line simply because killing is good for business. The lesser of two evils twaddle is a misnomer in a society that has never found its moral compass. Americans appears to be forever readying for an election, but nothing of significance ever changes or is even discussed. In a nation of private banks, public welfare has become passe. Meanwhile, millions in public service and academia mutely wait out their time in a manner that doesn’t threaten the safety of their pension funds while occasionally…and wistfully perhaps…reflect on the consequences of the aggression America and its allies have wrought on the world at large.

Too bad about hapless Yemen and the wanton slaughter of civilians over there! Too bad about hapless Gaza and the wanton slaughter of civilians over there! Or put more simply; it’s too bad about hapless Yemen, Gaza, Iraq, Afghanistan, Libya, Ukraine, Honduras, and the wanton slaughter of people across the globe. Propaganda had become playdough in the greasy hands of Anglo-Zionist corporatism, and the journalism provided by the New York Times was strictly for the manicured minds in the Beltway.

But as nothing is as it seems to be, truth must remain a shadow on the cave wall, sometimes a statistical blur, sometimes a pig-in-a-poke. But the cleverest pig in the American poke must be AIPAC, an institution that manages…quite rabbinically…the tensions that exist between anti-Semitism and Philo-Semitism in a country that is xenophobic, socially underdeveloped and evangelical. It has made pig-in -the-poke politics extraordinarily successful by secreting itself into the heart of the system, thereby gaining inordinate control of the so-called Western narrative. Having situated itself as a media player…with the help of the New York Times etc…it has been extremely successful in deflecting critical attention from the destruction of Palestine. It became an institution that gave new meaning to the ‘embedded’ concept.

AIPAC had read the cards correctly and knew only too well how to play the evasive corporate game; keep public interest from spoiling the privateer’s banquet for a start. Its biggest achievement to date is to have ventured into the very heart of its host country economically and achieve unconditional military support for its colonization of Palestine. Its other significant achievement has been to present the Jews as a people of great moral stature to the American people and have them share in their hatred of the Palestinians. But the cleverest achievement of all…and I wonder how this reflects on the American public and much of the West…is to have played the anti-Semitic card to such effect, that so-called civilized communities across the West are rendered mute when confronted by the barbaric colonization that is going on in Palestine. It’s as if the American public, upon observing what is happening in Palestine, see the mirror image of their own business-as-usual mentality, and accept it as normal.

But from outside the west, the perspective is very different, Zionism is seen as a critical mass controlling the critical responses to Zionist propaganda in the many countries that host them. Anti-Semitism is unique to those who imagine that Jews live off the bounty created by non-maleficent business practices in a variety of Western countries, while retaining allegiance to an historic mythological narrative from which they derive notions of exceptionality. That they project them onto their host countries becomes another issue. For instance, the accusations of anti-Semitism against Jeremy Corbyn…an honourable man and non-racist who has many supporters who regard the criticism of him as a conspiracy…illustrates how Zionist propaganda can release ad hominem viruses into Western institutions for the purpose of establishing for itself the role of the supreme arbiter in matters pertaining to the moral high ground.

John F. Kennedy is on record as saying,

“My fellow Americans, ask not what your country can do for you, ask what you can do for your country”.

When he said these words, he was not addressing special interest groups or portions of the community…he was thinking of the ‘social’ fabric, the entire community. Wall Street casino capitalism, big wasteful Pentagon military budgets, CIA stoked instability, Zionist style Machiavellianism, media-military collaboration and relationships during times of perpetual war were some of the ‘portions’ he had to bypassed. John F. Kennedy, like Martin Luther King was aware that proportionality was a prerequisite to inclusiveness; unfortunately, both were assassinated.

The American way was always to shoot off guns or shout down those who had a social vision. The elites imagined that the many were there to serve the celebrated few. If Margaret Thatcher had been an American, would she have said…’there is no public, there is only The Dow’?

Denis A. Conroy
Freelance Writer
Australia.

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