Some extracts from The Tyranny of Monopoly-Finance Capital A Chinese Perspective by Sit Tsui, Erebus Wong, Lau Kin Chi and Wen Tiejun published in Monthly Review in February 2017. The article goes on to examine the affer effects of financialization in Chinese economy. These extracts provide crucial insights into globalized monopoly finance capital which rules our lives through debts and taxes.
The tyranny of global monopoly-finance capital can be seen in part as monetary geopolitics backed by military power. Through investment schemes, it directly appropriates the production gains made by the physical and resource economies of developing countries. At the same time, it engages in financial speculation by buying long and selling short in capital markets. The end result is the plundering of social wealth.
Since the 1980s, economic growth in the core capitalist countries has been driven by an enormous expansion of financial capital, accompanied by steady deindustrialization. In recent years, the monopoly power of this financial capital has displayed increasingly tyrannical characteristics: it depends for its continued growth on ever-increasing indebtedness and dependence in developing nations, widening the divide between rich and poor and ultimately fostering state violence that serves to suppress popular resistance. In the era of Western-dominated financial capital, military and monetary strength work together to profit from inequality and instability in emerging economies.
The Use of Monetary Geopolitics
Wherever it goes in its drive toward exorbitant profits, globally mobile financial capital is consistently characterized by three features: liquidity, short-term speculation, and concentration. These tendencies inevitably produce bubbles and crises whose risks and costs are externalized from the multinational banks and firms that create them. The Internet and other innovations in telecommunications have made possible the immense volume of “high-frequency trading,” a globe-spanning system of split-second, automated digital transactions that has come to dominate high finance. Where traditional banking served the physical economy by facilitating investment in productive infrastructure and in deposits, loans, exchanges, and remittances, financial capital today operates in a largely virtual realm of ever more sophisticated financial “devices” and “products.”
These forces of de-localized, stateless financial capital depend equally on collusion with military powers in resource-rich regions, where “long-short” speculations are manipulated to reap huge profits, in the process sparking violent conflict and displacing tens of thousands of people.
The role of Western governments and corporations in these regional conflicts is justified in the name of “human rights” and “democracy”—slogans that recall the “civilizing mission” of nineteenth-century colonialism.
While its power has weakened somewhat, the United States remains the world’s financial hegemon. This monetary dominance is underwritten by military strength: just as the U.S. dollar dominates currency markets and reserves, U.S. military bases encircle the earth. Since becoming the world’s “sole superpower” after the demise of the Soviet Union, the United States has regularly launched invasions, aerial bombardments, and other interventions in Iraq, Afghanistan, Libya, and elsewhere. Whatever their stated rationales or immediate goals, the ultimate aim of such actions is to defend, consolidate, and expand the so-called “Dollar Lake.” In fact, as the U.S. debt crisis has worsened, its military spending has increased, because the country’s unmatched power allows it to issue ever more debt to avoid repayment of existing debts—not by virtue of the strength of U.S. democracy or markets, but through the sheer military force that supports its financial capital. It is no surprise, then, that the United States accounted for more military spending in 2015 than the next seven biggest arms spenders (China, Russia, Saudi Arabia, United Kingdom, France, Japan, and India) put together.
Every U.S. administration in modern history, regardless of which party is in power, has affirmed that a strong dollar is fundamental to the nation’s prosperity and security—implicitly forbidding any country to try to undermine the primacy of the dollar as the international reserve and trade-clearing currency. The defense of U.S. monetary hegemony takes many forms, from military intervention to ideological pressure to economic sanctions to “free trade” agreements.
The Predicament of Emerging Countries
In the financial phase of global capitalism, financial competition is largely dominated by the “core” advanced economies, and the enormous profits and speculative capabilities of financial capital are concentrated among transnational corporations, based in the core countries, that command monopolistic positions. In the years since the 2008–09 crisis, central banks in core countries have, through enormous amounts of quantitative easing (QE), provided capital at effectively zero interest rates to institutional investors, allowing them to reap high returns from capital markets, resource privatization, raw material and food commodity markets, as well as derivatives, similar to those that precipitated the most recent financial collapse. Further, the zero-interest U.S. dollar has spurred overseas investment and strategic acquisitions in the physical economies of developing countries. According to one estimate, two-thirds of China’s twenty-one major industries are controlled by foreign capital.
In contrast, the U.S. Federal Reserve’s plan to “taper” QE and gradually raise interest rates has rattled global financial markets, especially in emerging countries whose physical economies are most dependent on foreign investment.
It is to be expected that in order to externalize the cost of frequent financial crises, the core countries would develop corresponding institutional arrangements. The most obvious of these is the Fed’s QE policy, which has served substantially to expand the role of virtualized financial capital in core countries. Next, in order to protect their assets from a worsening financial crisis largely driven by their own speculative investments, the centers of financial capital, such as the United States, Europe, and Japan, have advanced institutional reforms to stabilize their own financial markets. In October 2013, the central banks of six major developed economies—the United States, the European Union, Switzerland, Britain, Canada, and Japan, with the Fed at the center—announced a long-term multilateral currency-swap agreement that would build a cooperative network for liquidity among these core countries. This outwardly unremarkable decision in fact signified the formation of a “new core” for the financial phase of global capitalism, a major institutional adjustment. Chinese economist Xu Yisheng has called it the new “Atlantic System” of international currencies. Financial markets in the countries whose currencies have entered this system—the U.S. dollar, euro, yen, British pound, Canadian dollar, and Swiss franc—will enjoy liquidity support as well as the “bottom line of risk premium” assessed by international capital. Meanwhile, in economies outside of the system currency exchange rates and financial markets are left vulnerable to volatility and crisis. In October 2014, the Fed formally announced the end of QE. The Japanese Central Bank and European Central Bank had earlier picked up the slack and put forward their own QE policies. In December 2015, the United States resumed its cycle of interest rate hikes.
Since the Fed’s mid-2013 announcement that it would begin tapering QE, which sent shock waves through global currency and financial markets, global financial capital has retreated en masse from emerging markets. The U.S. dollar has regained its strength, causing jarring fluctuations in emerging markets, including currency depreciation, asset price decreases, growth slowdowns, and even stagnation or contraction. Such effects have helped expose longstanding structural problems in these countries. Among them, states, such as Brazil, that lack measures to limit currency exchange or contain capital flows, have been hardest hit.
There has been enormous turbulence since June 2013 in emerging-market currencies threatened by the prospect of QE tapering.14 From June 2013 to early September 2015, in terms of U.S. dollar exchange rates, the value of Brazil’s currency had dropped by 73 percent, Turkey’s by 55 percent, Indonesia’s about 45 percent, South Africa’s by 34 percent, India’s by 17 percent, and China’s by 5 percent. It can be seen that, except in China, which maintains strict capital controls, these countries stand to lose the most in the ongoing institutional transformation of global finance. Brazil, Indonesia, Turkey, South Africa, and India are already being referred to as the “fragile five” in economic scholarship.
It was estimated that in the thirteen months preceding July 2015, net capital outflows from the nineteen biggest emerging economies totaled $940.2 billion.