“The emerging hegemonic contest has no ideological content but is driven entirely by capitalist economic interests.”
Costas Lapavitsas is Professor of Economics at the School of Oriental and African Studies andconvenor at European Research Network on Social and Economic Policy. He is the lead author together with the EReNSEP Writing Collective of “The State of Capitalism: Economy, Society, and Hegemony” that was published in December. Read our Book Review HERE
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A hegemonic contest of Great Powers
We live in an era of unprecedented military tensions threatening world war. Since 2022 two peer military powers – Russia and the USA with its allies, proxied by Kiev – have confronted each other, ruining Ukraine, and causing hundreds of thousands of deaths. The Middle East has been on the brink of generalised war for months as Israel continues to massacre Palestinians in Gaza aided and abetted by the USA. And tensions between two other peer military powers – the USA and China – have escalated enormously, raising the prospect of armed confrontation in the South China Sea.
The USA is still the foremost power, China is the rising economic power, and Russia is a great military power with a far stronger economy than the collective West imagined. These three Great Powers are contesting hegemony and gradually entering a macabre dance of war. This is certainly not how things looked in the first years of the twenty first century. How to explain it?
One way of doing it is by relying on the prevalent Liberal ideology, for instance, the works of Robert Keohane. The USA is a beacon of liberal democracy and the pivot of international institutional cooperation among countries that precludes overt hegemonic dominance. It is currently locked in struggle with authoritarian dictators in China and Russia. All those who value individual rights and democratic freedoms should side with it.
Proponents of these views have had a huge impact on US foreign policy, in effect shaping it for decades. Unfortunately, their assertions will not withstand a moment of critical scrutiny. But we do not even have to engage in that. The genocidal conduct of Israel in Gaza has put paid to these notions in practice. The Global South laughs at their mere mention.
More mileage could be gained through the Realist approach to world politics, for instance, the works of John Mearsheimer, who has distinguished himself as a vocal critic of the West in Ukraine. Great Powers inevitably seek hegemony and what matters is the balance of material factors – population, economic output, military force. The USA has dramatically underestimated Russia believing that it could be undermined via a military proxy buttressed by economic sanctions. The hegemonic power acted foolishly and will pay a price.
Realist analysis has immediate appeal for those who look at the world with the lenses of classical political economy. But it is still limited. What underpins the rise of China and the return of Russia? What are the structural forces leading the three Great Powers to compete for hegemony, pushing the world toward catastrophic war? These are vital questions that need to be answered.
Marxist theory of imperialism
Marxism offers the most persuasive reply by locating the underlying forces in the exploitative and oppressive relations of global capitalism. The analysis of imperialism remains one of the most enduring contributions of the Left to international politics in terms of both ideas and popular movements.
The canonical argument was, of course, developed by Lenin, drawing primarily on Hilferding. Both were confronted with the classical imperialism of the last quarter of the nineteenth and the first decades of the twentieth century, when mostly European colonialists divided Africa and other parts of the word, creating huge territorial empires and fighting each other murderously. The underlying structural forces were summed up by “finance capital”, that is, monopolistic industrial and commercial capital amalgamated with banking capital, with the banks in the driving seat.
Finance capital sought to establish territorial empires ensuring extraordinary profits through the export of commodities and the export of loanable capital. The profits extracted from the colonies allowed capitalists to buy off a layer of the working class, the “aristocracy of labour”. To achieve its territorial aims, finance capital needed the military support of its own state, and thus the world was divided in (mostly European) empires confronting each other. The latecomers, that is, Germany, Japan, and the USA, attempted to redivide the world to obtain a share of the profits. World War I followed, bringing the great slaughter of the fields of Flanders and elsewhere.
Imperialism continued to mark the twentieth century, pivoting on the USA, but took a very different form as formal colonial empires came to an end. In the second half of the century the hegemonic US dominated much of what was then called the Third World, while confronting the USSR and its allies. There was permanent Cold War but no generalised conflagration, partly because of the nuclear balance of terror.
Lenin’s and Hilferding’s arguments no longer held in the decades following World War II. To be sure there were great monopolistic enterprises, both US and European, that spread their tentacles across the world. However, finance was heavily controlled, the export of loanable capital was limited, and there was never any question of banks dominating private industry. US multinationals extracted profits from the periphery without need for a territorial empire. The Left produced theories of “dependency” and “underdevelopment” that sustained anti-imperialist movements across the world.
During that time, the USA oppressed and bullied peripheral countries, but its main opponent was the USSR. Military competition among the historical imperialist countries came to an end in 1945 and never re-emerged. When the USSR collapsed in 1991, the USA ascended to unique global hegemony. For a moment it seemed that Kautsky’s old theory of “ultra-imperialism” had come true, namely that competition among imperialists would eventually lead to one dominant power permanently pacifying hegemonic contests.
The rise of capitalism in China, Russia and elsewhere in the twenty first century has refuted such fantasies. Imperialism and the struggle for hegemony today are reminiscent of the times of Lenin and Hilferding, but they are also profoundly different. Some of their key features are summed up below by drawing on our recent book, The State of Capitalism.
Globalisation and financialisation
Monopolistic industrial and commercial capital currently dominates the world market. The great multinationals rule global capitalism, hailing mostly from the USA, Europe, and Japan, but increasingly also from China and other parts of the world. Their distinguishing feature is the internationalisation of production rather than the export of commodities. Crossing national borders to produce and generate profits is, of course, an old practice of capitalist business. Its scale during the last four decades is without precedent and even more important is the form it takes.
Production across borders is now possible without the capitalist necessarily having direct property rights over the productive capacity. Enormous production chains encircle the world with the participating enterprises often linked to each other through contract alone. The lead multinational sets the chain’s terms of pricing, credit, technology, delivery, and so on, seeking high profits for itself. At the same time, the chain allows small industrial firms in, say, Turkey or Thailand, to give an international character to their production without moving location or forfeiting property over capacity. At least two thirds of world trade take place within production chains dominated by multinationals, and there are chains led by multinationals originating in the periphery.
During the same period finance also became global in unprecedented ways, summed up by the financialisation of capitalism. Huge banks and “shadow banks”, that is, investment funds, hedge funds, and the like, operate continuously and in real time across several international markets. Capital exports are enormous, primarily among the old capitalist countries but there are also significant exports toward the periphery. The flows comprise mostly loanable capital to fund states as well as private businesses. Crucially, there are also substantial flows from one peripheral country to another.
Internationalised productive enterprises and global financial enterprises have created the most aggressive combination of capitals known to history. They are not amalgamated and neither dominates the other – there is no finance capital today in the manner of Lenin or Hilferding. Rather, the huge multinationals command vast liquid capital directly and make it available to financial markets. Microsoft or Pfizer continually interact with financial enterprises, but no bank can tell them what to do.
This pairing of capitals is the economic foundation of contemporary imperialism. They do not strive for territorial exclusivity, and nor do they need formal empires. What they require is, first, an institutional framework allowing them to stretch and dominate the world market and, second, a secure form of world money to settle obligations and preserve value globally. The state that can most adequately meet these requirements can lay claim to being the hegemon.
The hegemonic position of the USA derives from its pre-eminence in multilateral organisations, such as the IMF, the World Bank, and the WTO, as well as from its ability to determine the legal and practical framework of international commerce, accounting, finance, investment, and so on. Above all, it derives from the ability of the Federal Reserve to control access to the dollar as world money through foreign exchange swaps and other means. Naturally, the ultimate foundation is global military power.
The hegemonic power of the USA is manifest. Its financial institutions control the complex mechanisms of global transacting, clearing, and paying. Its multinationals produce and trade across the world, and some of these giants dominate the emerging new technologies. Its military forces encircle the globe, and a vast military budget dwarfs those of the rest or the world’s nations. The old imperialist countries are subordinated to it in geopolitical terms. Their own industrial and financial enterprises have largely adapted to the global framework dictated by the USA.
The US ruling class has shaped the current form of the world economy and drawn enormous benefits from its hegemonic position. Not least is its freedom to undertake monetary policy that affects the rest of the world, and at the same time result in a net transfer of resources from other countries forced to hold vast reserves of dollars. As often happens in history, however, the USA has ended up paying the price of its own success.
The rising challenge
First and foremost, the internationalisation of production and finance allowed the US ruling class and its allies to squeeze their own workers in unprecedented ways. There is no “aristocracy of labour” across the West, presumably bought off by the proceeds from abroad. Quite the contrary. There are enormous inequalities of income and wealth, a decline of domestic infrastructure and welfare provision, a despairing middle class, and vast layers of working poor.
Second and equally important, blinded by its own arrogance, the US ruling class misread global development. The internationalisation of production and finance allowed further centres of capitalist accumulation to appear across the periphery. Internationally oriented productive and financial capitals emerged, notably in China, but also in Russia, India, Brazil, and elsewhere. Supported by their own states, they established centres of dynamic domestic manufacturing and began to compete in the world market. Similarly to their competitors in the USA, but also in Europe and Japan, they seek favourable institutional conditions and controlled access to a reliable form of world money.
The challenge to US hegemony springs entirely from the dramatically reshaped periphery. The rising powers demand a say in the institutional shaping of the world market, including world money. Unlike the post-war years, and similarly to Lenin’s times, the emerging hegemonic contest has no ideological content but is driven entirely by capitalist economic interests. This is ultimately why it is exceedingly dangerous and raises the prospect of generalised war.
There is no obvious settlement the USA could reach with its challengers. Its own society is wracked by division and dissent; long ago it lost its global pre-eminence in manufacturing; recently it fell to second place in global trading; its military establishment is certainly vast, but its actual effectiveness is debatable. To be sure it retains financial and monetary pre-eminence, but that is not enough to ensure its position as unchallenged hegemon. Those days are gone for good.
It would be a grave mistake to overestimate the strength of its challengers, however. China holds roughly 3 trillion dollars but much of the hoard is kept abroad and any significant fall in the value of the dollar would damage it directly. Moreover, the international transactions of Chinese banks and enterprises are primarily denominated in dollars, perhaps to the tune of 2 trillion. And that is without even mentioning the domestic problems of China as rapid capitalist accumulation has come to an end and the rate of profit has declined.
For the foreseeable future, the USA will remain the dominant global power and the main threat to world peace locked in struggle to defend its hegemony. Its challengers, moreover, are anything but the bearers of a better promise for humanity. Capitalism red in tooth and claw propels them forward.
Internationalised production and finance have given rise to a deadly hegemonic contest within a very short order of historical time. The threat of world war will not subside through political or moral arguments. It is incumbent upon the Left to preserve the hope of peace by drawing on its long anti-imperialist and anti-capitalist tradition in both theory and practice.
The State of Capitalism: Economy, Society, and Hegemony by Costas Lapavitsas and the EReNSEP Writing Collective
Publisher: Verso
ISBN : 978-1839767845
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