John Smith, former oil rig worker, bus driver, telecommunications engineer, longtime activist in the anti-war and Latin American solidarity movements, and author of Imperialism in the Twenty-First Century: Globalization, Super-Exploitation, and Capitalism’s Final Crisis (Monthly Review Press, January 2016), discusses the question of imperialism in the following interview taken by Farooque Chowdhury during July 2018-February 2019. The interview, in slightly abridged form, originally appeared on MR Online on March 19, 22, and 23, 2019.
Following is the 3rd part of the four-part interview.
Constraints of imperialism
Q 10: What constraints is imperialism facing today?
JS: Just six words, but you could not ask a bigger question! The financialization phenomenon discussed in preceding answer, and the immense over-accumulation of capital, which it has fostered, is the surest sign that imperialist capitalism is heading towards a cataclysmic crisis, since the financiers’ ability to use debt to amplify profit streams and inflate asset values is finite. Their ability to resume this peculiar form of “wealth generation” despite the temporary interruption of the global financial crisis, has crucially depended on the zero interest rate policy (ZIRP) implemented by the central banks of the imperialist nations — the USA’s Federal Reserve has raised its interest rate nine times since November 2015, each time by 0.25%, but once inflation of around 2% is subtracted from its current level of 2.5%, the real interest rate in the USA is barely above zero. Central banks in the UK, Europe and Japan are yet to follow the Fed in moving away from ZIRP, their real interest rates are strongly negative.
Official interest rates (sometimes called the “base rate”) reflect the cost of money to private banks, large corporations and wealthy investors, and are much lower than those charged on loans to households and small businesses. It should not be thought that power over interest rates allows governments and central banks to dictate market conditions — rather, it is the markets, i.e. the owners of finance capital, who exercised dictatorship over governments and central banks. The official interest rate reflects the so-called “natural rate of interest”, determined by the supply of and demand for investment funds. The supply is vast, yet it is faced with a dearth of productive investment opportunities — there is plenty that needs doing, but capitalists calculate that expected profits are insufficient to balance risks.
Why is this so important? Unless capitalists think they will make more money by investing their cash in the production of goods and services than what they’d earn in interest if they left it in the bank, they will not invest. By pushing interest rates down towards zero or even into negative territory, central banks hope that capitalists will be stimulated to invest their cash and not just stash it in the bank. Ultra-low interest rates are therefore a sign of deep crisis — signifying that capitalists are exceedingly reluctant to invest, either because of a dearth of profitable investment opportunities, or because they perceive the risk of losing their money to be too high, or both. Given that real interest rates are lower than at any time in the history of capitalism, for the rate of investment to be so low (whether this is measured as a proportion of GDP or as a fraction of available funds for investment) in the imperialist economies and in much of the rest the world, is truly astonishing.
There are lots of complications which could be explored and qualifications which could be made about all of this, but I now want to move to a slightly different subject: given that ultra-low interest rates are a sign of deep malaise, how could they also be a means to support and further inflate the value of all manner of financial assets, from stocks and shares to bonds to real estate? Simply, because ultra-low interest on cash deposits in banks encourage the owners of this cash to purchase stocks and shares, residential or commercial property, bonds — anything which gives them title to a stream of profits or of rents or of interest payments that include a risk premium. Not only that, ultra-low interest rates encourage banks, large corporations and very rich people to borrow money in order to purchase even more financial assets, leading one Morgan Stanley banker to describe zero-interest-rate policy as “crack cocaine for the financial markets”. And, so it is that the extreme monetary policies pursued by central banks since 2008 (and indeed in the decade before the financial crisis!) have created money-making opportunities for the super-rich on a scale never seen before in human history. An indication of this can be gleaned from Cap Gemini’s annual World Wealth Reports, which report that the total wealth in the hands of the world’s “high net worth individuals” (that is, people who own more than $1 million in investable assets), more than doubled in the 10 years following the beginning of the global crisis, growing from $32.8 trillion in 2008 to $70.2 trillion in 2017 — an increase of 114% in just 10 years, yet during the same period global GDP increased by only 27% (adjusted for inflation, these figures translate to 100% growth in HNWI wealth compared to a 24% growth in global GDP).
The final detail to be added to this picture concerns the consequences of these extreme monetary policies. Ultra-low interest rates have encouraged capitalists to borrow money to finance investments; but instead of investing in new means of production, the bulk of it has financed speculation in markets, inflating asset bubbles that are reflected in ballooning HNWI wealth discussed above; or in so-called intellectual property (IP), which generates monopoly rents for its owners but does not increase social wealth (and in many cases reduces it); or to finance share buy-backs, which increase the wealth of shareholders but which, again, do not result in any increase in the production of goods and services. Governments and central bankers are aware that all of this is storing up immense problems for the future, yet the capitalists they serve have become addicted to this “crack cocaine”, and so far only the USA has taken timid steps to restore interest rates to what they call “normal” levels.
The great fear is that, if ultra-low interest rates have stimulated asset inflation, higher interest rates will result in asset deflation, in other words another financial crash. And if they leave interest rates where they are, not only will asset bubbles, debt mountains and other pathological disorders continue to get worse, central banks will be deprived of the chief tool they need to prevent the next cyclical recession from rapidly gaining momentum and provoking another financial crash. Recall that, in the last three recessions in the United States, the Federal Reserve has slashed interest rates by an average of 5%, but this option is unavailable right now (because the Fed’s “policy rate” is currently 2.5%, or 0.5% when inflation is taken into account); and still less is it available to central banks in the UK, Europe and Japan where real interest rates are currently well into negative territory.
“Global yields lowest in 500 years of recorded history. $10 trillion of negative rate bonds. This is a supernova that will explode one day,” in the words of leading bond trader Bill Gross. The metaphor is apt — a supernova occurs when the energy fueling a star’s expansion becomes balanced by the gravitational force pulling it towards the centre. It may take eons to arrive at this moment, but when it does the star collapses on itself in seconds, and then explodes, scattering debris throughout its galaxy.
So, to get back to the question, the chief constraints confronting imperialism are those that arise from capitalism’s own internal contradictions, and these manifest themselves in the systemic crisis briefly described above. Their fundamental root lies in the nature of capital, which can be defined as self-expanding wealth, that is wealth which appears to grow magically by itself, a goose which lays golden eggs, but whose growth, as Karl Marx proved in Capital, depends on unpaid wealth generated by exploited workers, which Marxists call surplus value; augmented by wealth captured from working people employed in non-capitalist sectors of the economy, so-called accumulation by dispossession. As briefly described above, the financial system has allowed capitalism to turbo-charge capital accumulation, through the generation of vast quantities of fictitious capital, but in the end every single one of the $70 trillion in the hands of HNWIs can only become capital and remain as capital thanks to surplus value extracted from living labor. Thus, the fundamental constraint is the extreme and growing disproportion between the total mass of wealth in the hands of capitalists, on the one hand, and the quantity of surplus value it is capable of extracting from living labor in order to convert this wealth into capital on the other. And as Lenin explained, it is precisely this disproportion, which impels capitalism onto its imperialist trajectory.
Q 11: Is it different from the days Lenin defined imperialism?
JS: Fundamentally, it is no different. What is different is that these contradictions are many magnitudes deeper and are also far more extensive. When Lenin wrote his famous book on imperialism in the middle of World War I, capitalism had yet to fully impose its social relations on the peoples of Africa, Asia and Latin America; the relation between imperialist nations and subject nations was a relation between capitalism and pre-capitalist social formations. This is one reason why I believe that capitalism’s contradictions are immeasurably deeper now than they were in the period that led to World War I and to the Russian revolution.
Q 12: How is imperialism trying to overcome the constraints it is facing today?
JS: By escalating its assault on workers and poor people, by fighting to reverse the expensive concessions it has made to pacify the working class in imperialist countries, by intensifying its rape of mother Earth, by increasingly resorting to “beggar-thy-neighbor” policies, as manifested in currency manipulation, trade wars and the disintegration of multilateral institutions.
Q 13: Is it possible now to define imperialist camps? What these camps are? How these camps are behaving with each other? It’s observed that one faction of imperialism is opposed to a free trade agreement while another faction is going after it. Fights among imperialist powers are going on in the World Trade Organization. There’s increase in protectionism. What signifies these developments?
JS: The process by which economic contradictions translate into political rivalry and military confrontation is extremely complex and depends on many things — including contingencies such as the emergence onto the stage of history of mavericks like Donald Trump or the outcome of a finely-balanced referendum such as the one that led Britain to decide to withdraw from the European Union. It is not possible to predict with any degree of certainty how the post-WWII US-led imperialist world order will break up, just that it will break up. Will the Franco-German alliance survive the next stage of the European Union death agony? Will the USA maintain its close embrace of Japan, the country it nuked in 1945? Will China forge its own sphere of influence and take the next steps towards becoming an imperialist power?
Only by discussing the past and the present can we get a glimpse of the future. All I can say for sure is that there is a massive storm coming, and that the only way out is for workers to cease their reliance on any wing of the bourgeoisie and do what Russia’s workers and farmers did in 1917 and what Cuban workers and farmers did in 1959 — to take power into their own hands, to carry out a socialist revolution.
[Part 3 concludes.]