Translated from MSZ 1-1989
Eight years of Reagan – a balance
Ronald Reagan assumed the office of the presidency eight years ago with anything but modest intentions. He wanted to restore America’s strength; to close the “window of vulnerability” that he and his advisors had identified in relation to the Russians; and the overarching objective, which was not at all secret, was to put an end to the eternal necessity of having to deal with the Russians – the “evil empire” was to finally be destroyed. His economic projects were not small-minded either: he wanted to invent a completely new type of economic policy; taxes should be lowered, the budget deficit as well, the dollar restored to its former glory and splendor, and America’s economy should set new standards for its competitors in Europe and the Far East.
Putting this program into action stirred things up – in the USA and around the world. There was an SDI, medium-range missiles were deployed and withdrawn, Libya was bombed, and one or two other wars were fought. The dollar rose and fell again, there was a boom and a stock market crash, the “global debt crisis” is now just as much a part of the permanent global political program as “trade wars” between the USA, Europe and Japan.
It’s obvious and quite banal that not everything went quite as Reagan might have imagined in the execution of this program. Nevertheless, this is pretty much the only judgment that local assessments of the “Reagan era” can come to. Whether as a compliment to the supreme leader that he had proved “flexible” and “turned his policy around 180 degrees” so that “the Saul of détente criticism became the Paul of the first disarmament treaty in world history” (Czempiel, Supplement to Parliament 44/88); or in the form of the maliciously concerned comment that even the Americans can’t do everything they want:
“It is America’s thriving and at the same time precarious economic situation that condemned presidential candidate Bush to eloquent silence during the election campaign... But in day-to-day politics, it is not possible to carry on as before. America's mountain of debt poses a threat to the global economy...” (Carlos Widmann, Süddeutsche Zeitung, November 22, 1988).
Such statements give pause. Regardless of their veracity, what if Reagan had been less “flexible”? Apparently, it depends on the free calculations of the world’s No. 1 power whether it accepts a force that opposes its program – in this case the Russians, by the way! – as a barrier. And that should be seen as a reason to calm down – along the lines of “reason has prevailed”? Has anything changed in the main goals of the Free West? Is SDI not being built any more? And as for the American “mountain of debt” – somehow it also proves that the USA is still an excellent place to invest money capital. Why shouldn’t they “carry on as before”? Who is stopping them – and what is better for whom if they don’t?
The view that a president of the world’s No. 1 power resolved on a lot of goals but did not achieve them all is simply not accurate. One would have to be determined to confuse the methods that an American president chooses to achieve his goals with the matter itself in order to come to the conclusion that he has taken a “180-degree turn” in terms of SDI or to derisively label the US administration “poor” in terms of economic and monetary policy.
However, such “balances” do prove one thing: when it comes to the question of what standards can be used to disgrace the policies of democratic leaders, Reagan successfully established facts that no democrat wants to ignore. It seems completely natural to say that a government is “realistic” simply because it has once again refrained from carrying out plans for war. It is perfectly clear that every material concern of an ordinary person must take a back seat to concern for “the world economy.” The Reagan era set the standard here – both practically and ideologically.
The Reagan era begins: “Reaganomics”
According to popular opinion, US policy under Reagan pursued two independent goals. On the one hand, the goal of getting the American economy “back in order” – “Reaganomics.” On the other hand, the military goal of “restoring American superiority” – in other words, keeping the Russians down. And these goals are said to have contradicted each other: to the extent that it would not even be possible to get an economy back in shape while at the same time burdening it with ever-increasing “arms burdens.”
It is still obvious to everyone that “arms burdens” take up a lot of national wealth. The fact that “Reaganomics” is nothing other than the economic method of creating wealth for this purpose can be taken from Reagan’s own words. His complaints about the state of the American economy and the measures he initiated with his Economic Recovery Program can only be explained by the demands he placed on the American economy with his program of “restoring American power”:
“We cannot meet our obligations in the world without a strong economic policy that is successful at home and in the world market. We cannot continue to allow the government to spend money it does not have while our currency is literally losing value day by day and week by week... We need to get our economy in order so that we can once again set an example to the world that our system is the best for all those who want security and freedom... The world must recognize that we still believe in the American dream.” (Reagan's speech to the Chicago Council on Foreign Relations on March 17, 1980, in his capacity as a candidate for the presidency)
First, the benchmark for what a “strong economic policy” should achieve is “fulfilling commitments around the world.” A war in Nicaragua, an SDI, a naval deployment in the Gulf, new tanks and missiles – these are the necessities of a leading world power that has given itself the task of ensuring the progress of peace, freedom and capital growth all over the world. All the money required for this must be available.
Secondly, in order to accomplish this purpose without any problems, the sources of national wealth must be made to flow. “Economic growth” is not about the well-being of any private interests – not even those of the business world itself. On the contrary, they must allow themselves to meet the claims of state tasks.
Thirdly, it is not (or no longer) automatically guaranteed that the nation’s wealth will provide what the state demands. The increase in capital must be taken care of because the state finances its concerns from it. The political power declares itself responsible for this. It is the best lever of profit. If there is something amiss when Reagan takes office, then in his view it can only be because previous presidents have lacked determination. Reagan wants to correct this.
So Reagan actually finds it unacceptable that an American president is not given the economic means to do so as a matter of course when taking office. As the leader of the world’s No. 1 power, he suffers from the state of the American economy from the viewpoint that it is unworthy of the USA to have to deal with economic policy at all, when he has much more important and world-decisive issues to deal with.
So if a president “has to” make economic policy, then America’s freedom to decide on the shape of its program of world rule is already at stake, unbothered by the question of what it costs. Reagan compares the current state of American money and American profit-making in the world with times when every new dollar brought into the world automatically meant more access to the world’s wealth for the USA; when other states had their worries about inflation, the economy and the balance of payments; while the Americans took the position of “benign neglect,” listened to the complaints of others about the “dollar gap” and “dollar glut” and otherwise busied themselves with their real task: the political and military development and expansion of the free world. The world of business and violence no longer looks like this. The USA has accrued competitors who deny its one-sided benefit from the world market. Reagan wants to correct this situation – his “strong economic policy” is supposed to be good for this.
“Reaganomics” is therefore anything but a program that worries about the health of the business world due to declining growth rates and excessive national debt. It is a political-economic program of both internal and external struggle – using the means provided by the world market set up by the USA. The fact that an American president is making economic policy to finance increasing armaments indicates that he knows that his financial needs are dependent on the calculations of a globally active business world. The fact that he is making economic policy for this shows his self-confidence in having the means to determine these calculations in the USA’s favor.
This explains why overcoming government financial problems in the USA has been elevated to the status of a political doctrine in its own right. The economy is put in the service of an unprecedented arms buildup program – and this is precisely why the USA is to become economically unrivaled again. War economy to market economy, and to this end to make America the world’s No. 1 economic power again: That was the program of “Reaganomics”.
So he decided to become an economic policy-maker: The “Economic Recovery Program”
Reagan presented this to Congress in February 1981 as follows:
“All of us are aware of the punishing inflation which has for the first time in 60 years held to double-digit figures for 2 years in a row. Interest rates have reached absurd levels of more that 20 percent and over 15 percent for those who would borrow to buy a home... Almost 8 million Americans are out of work. These are people who want to be productive.... Can we, who man the ship of state, deny it is somewhat out of control? Our national debt is approaching $1 trillion...The interest on the public debt this year we know will be over $90 billion...Adding to our troubles is a mass of regulations imposed on the shopkeeper, the farmer, the craftsman, professionals, and major industry that is estimated to add $100 billion to the price of the things we buy, and it reduces our ability to produce. The rate of increase in American productivity, once one of the highest in the world, is among the lowest of all major industrial nations... It is within our power to change this picture, and we can act with hope. There's nothing wrong with our internal strengths. There has been no breakdown of the human, technological, and natural resources upon which the economy is built.” (Address Before a Joint Session of the Congress on the Program for Economic Recovery - February 1981)
Leaving aside the demagogic allusions to the damaged interests of the “ordinary people” – what is Reagan actually complaining about here?
Firstly: interest rates, the inflation rate and the national debt are too high. Secondly, there are too many regulations in the economy that are a hinderance. Thirdly, the business of US capital is not profitable enough. That concludes the economic diagnosis. In relation to what these figures are supposed to be “too high”; what would be just the right interest rate, how many billions of dollars of national debt – of course Reagan doesn’t know this either and doesn’t need to know. It is enough that “it” is somehow not enough. American money represents less and less wealth; the more the state spends, the more it devalues; in order to get more credit, it has to pay more and more. So the money is not coming from where it is supposed to: from growing business success, which guarantees the dollar the quality of being able to increase itself, generates income for the state, and provides it with the basis for its credit requirements without having to finance itself through constantly new, progressively devaluing credit. According to Reagan, the state is also to blame for this: instead of freeing up business for accumulation and thus making it a source of money for the state, it is hindering it at every turn. A simple inverse conclusion: if the economy is not growing, but in principle could – then there must be other obstacles that need to be removed.
The findings already make one thing clear: it is neither simply about “reducing the national debt” nor about a “healthier economy.” After all, the national debt is assumed to be growing when people complain that the funds for it are always too meagre. Reagan does not want to make a plea for state modesty in this area – on the contrary! His practical proposals look accordingly:
1. “I am proposing a comprehensive four-point program. This plan is aimed at reducing the growth in government spending”
Here Reagan believes he cannot avoid clarification:
“I'm sure there’s one department you've been waiting for me to mention, the Department of Defense. It's the only department in our entire program that will actually be increased over the present budgeted figure... The aim will be to provide the most effective defense for the lowest possible cost. I believe that my duty as President requires that I recommend increases in defense spending over the coming years. Since 1970 the Soviet Union has invested $300 billion more...”
2. “Reducing taxes” means: “A 10-percent across-the-board cut every year for 3 years in the tax rates for all individual income taxpayers...The other part of the tax package is aimed directly at providing business and industry with the capital needed to modernize and engage in more research and development. This will involve an increase in depreciation allowances, and this part of our tax proposal will be retroactive to January 1st.”
3. “Reforming and eliminating regulations which are unnecessary and unproductive or counterproductive” because “overregulation causes small and independent business men and women, as well as large businesses to defer or terminate plans for expansion.”
4. “Promote a stable monetary policy: The final aspect of our plan requires a national monetary policy which does not allow money growth to increase consistently faster than the growth of goods and services. In order to curb inflation we need to slow the growth in our money supply. A successful program to achieve stable and and moderate growth patterns in the money supply will keep both inflation and interest rates down and restore vigor to our financial institutions and markets.”
What did Reagan intend to do with this program?
“High interest rate policy”
The debt burden moves on – its increase is curbed. In this respect, the “money supply that does not increase more than...” is a joke: with the additional debt burden, it has in any case been decided that additional solvent demand will be created and additional “liquidity” will flow into the credit system with the government bonds which it can use as a basis for more credit inflation. It is precisely this practice that is partly responsible for the “weakness” of the “financial institutions and markets” which is reflected in “erratic interest rate swings,” the fall in the dollar exchange rate, and rising inflation rates. Because a business world has indeed long been speculating with and on credit, which has its own source of accumulation within itself; the verdict on the dollar has long been that it is suitable as a means of speculation, but only conditionally as a means of productive increase; the situation has long since arisen that the business does not earn “financial institutions” the good money they need to ward off the threat of insolvency – so the Federal Reserve has to repeatedly substitute its credit for the lack of income from successful business. So there is a “plethora of money capital” that is running amok as a credit scam to the extent that there are barriers to the profitable productive investment of capital, which manifest themselves as a lack of “liquid funds.” And government debt uses precisely this speculation on the constant expansion of credit when it measures the interest it pays on debt instruments according to the inflation rate. After all, the 20% that has to be paid has to come from somewhere – and it does not come from a real increase in dollar wealth.
The Reagan program does not oppose this way of using credit and speculation – on the contrary. Rather it takes a positive stance on this situation – and this is, if you like, the “revolutionary” aspect of this decision. In the midst of the most attractive divergence of credit and accumulation, announcing a “restrictive monetary policy” gives the message that the state no longer intends to look after the question of how credit and interest rates are suitable for the continuation of productive accumulation by means of monetary policy. Additional credit was “created” while aggressively rejecting all warnings that this would “fuel” inflation. If the judgment about what the dollar yields as credit for more credit has already been separated from its suitability as a means for industry and trade – then the money that the US needs for its growing financial needs should also make ends meet on the basis of this judgment.
And that’s the whole “high interest rate policy.” Prioritizing concern for the “value of the currency” consciously and deliberately puts its faith in the business calculations of investment-seeking money capital – separate from and contrary to the prevailing judgment “on the market” about what the dollar is good for in all the other ways of using it. This judgment – which is expressed in the falling dollar exchange rate as well as in speculation sometimes on it, sometimes against it – does not suit the Reagan administration. So it decides to use its force to bring about a different judgment. If the business world is unable to establish the credibility of the dollar – then it must be established politically.
What needs to be corrected is therefore not simply the 20% interest on government debt securities – but rather the fact that this is a mere effect, a reaction to the level of credit and speculation, which merely compensates for the growing devaluation of the currency instead of adding value to it as a means of government debt. The USA has been competing for credit with interest rates for a long time, the argument goes: if this is the case, then this means should also ensure that it is the winner in the competition! For this purpose, the interest rate that the state pays on its debt is high in absolute terms, but not high enough as a means for it. By means of monetary policy, the US government wants to make itself the subject of the relationship between national debt, credit, and inflation. The increase in credit is supposed to achieve the miracle of not devaluing the dollar but rather, conversely, increasing its value.
How “restrictive monetary policy” is technically handled as a means to this end is one thing. (It’s a question of the extent to which a central bank will or will not provide increased bank liquidity for the additional credit requirements created by government debt – and thus, depending on the level of competition for credit, will decide what the credit will cost). However, the fact that its use as a means of making the dollar attractive is successful does not depend on this technique: any central bank could come along and ensure greater national ability to pay through a “tight money policy” and high interest rates! This is solely due to the dollar, i.e. to the fact that this national credit money is not like any other. It is already exposed to competition from others – as its fall in value shows. But if an American president announces to the world that the value of his currency is the most important thing in the world to him, that he wants to base his economic policy on this, and that he will not be dissuaded from this position even by the negative effects of high interest rates on industry and trade – then this is as good as a guarantee for foreign money capital that doing business with the dollar is profitable. And this is precisely the effect that is intended: instead of financing the deficit by constantly issuing new dollar bills, it should be financed by foreign money capital. Foreign wealth should find a dollar bond more attractive than a corresponding bond in marks or pounds – and thus save the state the need to finance its debts by constantly printing new dollars.
This is an announcement that the USA is using the means of national monetary policy to interfere in international competition in order to determine its course. It is counting on the dollar not being in demand “merely” because, like any other currency, it more or less successfully gets business going. To make this his program, a Reagan does not need to know much about the intricacies of a modern global financial market. He just needs to be sure that the offensive announcement that American money will regain the prestige it deserves with state assistance is enough to make the dollar – precisely because the question of safe investments was so unsafe at the time! – the first port of call.
Dumbfounded people have accused Reagan of having brought about a recession with his “preoccupation with the stability of the dollar.” On the one hand, this will probably be true – once one disregards the fact that it had already long existed. On the other hand, the question must be permitted, what is supposed to be so bad about it? Isn’t there always, apart from that, a lot of talk about the “self-healing powers of the market”? The small catch in the US government’s decision to ensure a “flight to the dollar” against the state of the global economy is, from the point of view of the state's interest in credit, also a bit different than the failure, which was certainly anticipated, of some productive capitals due to high interest rates on loans: capital is then sorted into devalued capital and capital that continues its accumulation with renewed vigor. It lies in the effect that such a failure in turn has on credit, i.e. in the fact that the state-decided, political guarantee of the dollar as interest-bearing capital is at the same time an attack on its function wherever interest is charged as a cost to be paid out of profit. If general “liquidity injections” to alleviate a credit crunch due to the threatened insolvency of companies, industries, and therefore also banks are no longer possible in principle – because of inflation – then the state has created a new field of activity in its constant “bailing out” of banks in financial distress. Bank failures and “rescue operations” have been part of the US economic scene ever since. First of all, the “high interest rate policy” contributed to the production of insolvency among domestic and, above all, foreign debtors of American banks – so that in the summer of 1982 the US Federal Reserve was unable to avoid a proper “liquidity injection” and the leaders of the world economy gathered for a first crisis summit to jointly avert a general credit crisis. The “world debt crisis” was born – and with it the first admission by the USA that its decision to recklessly increase credit was not possible without the willingness – however brought about – of its competitors (and allies!) to declare themselves politically responsible for the continued existence of the loans.
A first conclusion on the achievements of the Reagan era: The USA realized that it was dependent on its competitors’ money to finance its war program against the Soviet Union. It then decided to recover it – self-confident that the special position of its money gave it the power to correct the results of its competitors. And, quite incidentally, it achieved an ideological feat of the first order. By giving its method of competing with the other world economic powers for the means of an arms buildup the name of an economic policy concept, the purpose of the whole thing has never been concealed and at the same time has been taken off the table. Since then, rearmament has been about deficits, exchange rates, interest rates, and growth rates, as if their status were the overriding purpose of politics. This is the whole “trick” by which the capitalist leadership team prepares for war like a business: by negotiating its economic “problems” as if there were something to be “solved” independent of the standards from which their dissatisfaction with the course of the world economy stems. In this way, the civic idiocy that a budget is somehow more humane than a tank and that democratic politicians are in any case concerned with noble goals when they gather at economic summits comes into its own.
Free reign for profit
The Reagan administration did not want to make its debt dependent on the current level of accumulation; however, replacing the – missing – economic basis for growing debt with a political decision was not intended to be a permanent program. On the contrary: it seemed all the more urgent to Reagan to promote the accumulation of capital by all means – with the exception of additional government spending. Corresponding measures make up the second part of the Economic Recovery Program.
a) From this point of view, “containment” of the budget deficit becomes a purpose in its own right. After all, the aim is to restore the American economy to a solid basis for the demands of the national budget. But then government spending itself must also be subjected to the criterion of whether and how – in addition to financing the essentials – it serves the positive purpose of restoring the dollar to a solid basis in profit or even hindering it. Whether through its content, or simply because money is being spent that would be better used to make profits. So clear priorities must be set in politics:
“The taxing power of government must be used to provide revenues for legitimate government purposes. It must not be used to regulate the the economy or bring about social change. We've tried that, and surely we must be able to see it doesn't work.” (Speech to Congress, February 18, 1981)
b) With the cheap argument that a state social policy, which was never designed for this purpose, does not eliminate the poverty that it supports with state “welfare,” all programs in this sphere are declared superfluous in principle: they really do not contribute anything to the increase of capital. Reagan is also able to report a salutary effect from the fact that no one who is not declared “truly needy” by the state is allowed to live on food stamps – a position he never tires of repeating:
“But we must revise or replace programs enacted in the name of compassion that degrade the moral worth of work, encourage family breakups, and drive entire communities into a bleak and heartless dependency.” (Message on the State of the Nation, 2.4.1986)
This is how wages come about that really can’t be confused with a living wage and for this very reason do such an excellent job promoting American capital growth. This is how all sorts of “social change” is set in motion – for the rise of America.
c) “Deregulation” is based on the same point of view from which everything “social” is thrown overboard like ballast. Here Reagan was able to seamlessly follow the policies of his predecessor, who had already abolished oil price controls, controls on air traffic and transportation, and interest rate ceilings for credit institutions. In this way, the Reagan program wants to make it clear that it is due to the (poor) conditions set by the state that US capital is lagging behind its world market competitors. Remove everything that “shackles” capital is the motto. Then it will bring about the successes that the nation needs. His government has come up with quite a few ideas: clean air regulations, state-guaranteed minimum wages... All costs for capital must be eliminated if profit is to be fully restored. The jobs that Reagan boasts about today are on par with this.
d) Making people poorer and sparing capital a few considerations kills two birds with one stone: the state saves money and the cost of capital is reduced. The latter is also the aim of the planned 30% income tax cut as well as improved depreciation conditions. The idea has now become popular in Germany too: the state takes less from those who are able to use capital for their income – then they have more means of productive increase, capital grows and, as a result, so do taxes, and credit regains a solid basis in accumulation. As can be seen from the increased depreciation rates, Reagan does not simply want to do good for business here either, but to encourage his capitalists to invest more. In this way, capitalist competition is fueled and successful accumulation is rewarded, which is also supposed to benefit the state. Incidentally, the US administration has also shown itself to be “teachable” in this sphere. In order to emphasize the seriousness of its debt reduction stance, it later raised a few taxes again: consumption taxes, of course.
Fewer taxes, less restraint, lower wage costs: this is how the Reagan program aims to set new starting points for the growth of capital at home and for the (re)conquest of foreign markets and investment spheres. That is why it is not a contradiction when Reagan simultaneously announces more armaments, stable money, and tax cuts. Here the program is being ruthlessly put into practice that every means at its disposal must be used to finance American power; that it interferes in world market competition in order to set its standards, and that the nation can – and must – afford to pay for this.
A second conclusion regarding the achievements of the Reagan era: the USA has realized that it can only do as much with its money against that of its competitors as it can ensure the economic basis for increasing wealth. It has decided to turn its violence into a lever for profit here too. And here too the ideological accompanying music to the practical upheavals that the average American has to endure is not lightweight. Since “Reaganomics,” ordinary capitalism has regained its moral honor: every child in this country now knows that “social welfare” is something that a state can’t actually afford these days – insofar as it exists, it’s a luxury. The common good comes before self-interest, and the common good has nothing to do with hot dogs and cheap housing, but is spelled “national competitiveness.” Another success!
Budget deficits as a permanent nuisance
The results of this program are well known. On the one hand, the calculation is working: a lot of investment-seeking money capital is flowing to the USA, the dollar is rising. And the growth of capital in the USA is also impressive: Among other things, all the stuff the state buys with its debts also has to be produced at a profit! On the other hand, it is less clear who is profiting from this growth in the USA and how. This is because the accumulation of capital in the USA is not only increasing American wealth, but also that of its competitors. Reagan’s offers went to capitalists who happily took advantage of them. The result of their calculations is therefore far from coinciding with the economic and monetary results desired by the state. Due to the high prices, not only government bonds were bought in the USA, but a lot of other investment-seeking capital also flowed into the USA: European and Japanese “multinationals” accepted tax cuts and write-offs as a means of promoting business. This created new solvent demand – and with it the offer to foreign businesses to take advantage of it. Imports were plentiful, and that too was only good for “the economy” – companies producing in America used the cheaper imports resulting from the rise in the dollar to improve their profit and loss accounts. Conversely, American companies used the exchange rates to relocate parts of their business abroad and imported what had previously been produced in the USA itself. This resulted in decent profits and a boom – and yet the government’s desire to give the dollar a solid foundation in business was not satisfied.
This was noticeable in the fact that as government debt grew, its servicing from foreign wealth increased rather than decreased. As a result, the US government sees itself forced to maintain its offer to speculate on the dollar in the long term. This means that the success of its program remains dependent on the calculations of speculators, instead of emancipating itself from them – as planned – through its “own efforts.” However, if money capitalists decide in favor of the dollar because of the political guarantee of high interest rates, they can also change their minds again if they discover reasons to doubt this guarantee. And there are. Because to the extent that the boom in the USA gets world market business going again, the currencies of the “export nations” are strengthened in their function as a means of business because a growing volume of world market business, including the associated credit, is being transacted in them – and thus becoming a practical alternative to the “security” of the dollar as a financial investment. This is why the US administration itself is publicly raising doubts as to whether the high dollar exchange rate is not doing America more harm than good, so that the political guarantee on which speculation is based is also questionable. All good “arguments” for a “market trend” that any serious speculator would rather get ahead of than be caught by surprise by: Which is why it exists. After four years of soaring, the dollar rate is beginning to “crumble,” and not only that. The USA is forced to agree to “lower” the dollar jointly with the very competitors for whom it wanted to set the standard for competition with its high interest rate policy just four years ago. Not exactly a sign that the USA, with its wealth, can decide by itself where things are headed in the world of currency, credit, and debt!
For this reason, the USA is discovering a new reason for dissatisfaction. It is called the “growing trade deficit.” The Reagan administration claims to have discovered from the growing imports into the USA that foreign business is taking too much advantage of the increase in American wealth. It was hardly surprising that this happened. After all, the demands that American economic policy had made on the business world were somewhat contradictory. The dollar was to be strengthened for the national debt; in all other areas in which the exchange rate plays a role as a calculation factor, it was not to have any effect as a competitive condition. And “lots of imports” in itself – what’s wrong with that? Cheap imports benefit the US economy, after all!
This deficit is only a “problem” in one respect. It is an indication that only one half of Reaganomics is succeeding, even if it’s the half that was most important! The US national debt is being serviced by the newly produced wealth in the world: however, the basis of this servicing does not lie in a strengthened position of the USA on the world market. This does not suit the USA. If the yardstick is the restoration of American wealth without competition, then it is simply a nuisance to have to deal with the competition because of your debts!
From the US perspective, the reason the national debt is not also increasing its basis in American wealth is obvious: its growth policy has been abused by its competitors. If the USA is doing everything it can to promote its economy – and yet the deutschmark and the yen are benefiting more than the dollar from world market transactions – then, in the US view, this can only be because the political guardians of the competing currencies are preventing the USA from enjoying the benefits it deserves from the world market. According to the US government, this must be combated. So a new battle cry goes out: “Fight protectionism!”
At this point, it becomes clear what uncomfortable issues are being negotiated when “creditor nations,” “net debtors,” and “trade balance deficits” are talked about. By deciding to blame the competitive practices of the other world economic powers for the poor results in terms of the dollar and to take practical action against them, the USA has openly put the question of violence on the agenda. It is threatening to damage its competitors if they do not submit to the economic demands of the USA. The reason why this threat is “merely” practiced as a dispute over steel quotas and lemons is not because the USA lacks the means to carry it out. Rather, it is because it obviously has reasons of a higher nature that it sticks to the procedural form of a trade war with the other imperialist powers that are challenging its access to the world market.
A third conclusion from the Reagan era: The USA realizes that its political power, used at home to help capital get off the ground, does not guarantee its global market success against the competition. It is recalling its power to use means other than interest rates and tax cuts to take action against states that obstruct its interests. And it places importance on the fact that here, too, a human interest is being pursued: After all, who could have anything against “free trade”? So that intra-imperialist competition today seems to be the most peaceful thing in the world ...
“Fight protectionism”
In his last speech on the subject of “free world trade,” Reagan summarizes his credo on this issue as follows:
“Four decades ago, America accounted for half of the world’s economy. We were so big compared to everyone else that we could ignore most unfair practices abroad. Today we’re down to about a quarter. And it’s time for everyone to play by the rules, if they want to play with us. This is not, as some would have it, a case of American decline. In fact, our share of world output has risen since 1980...” (Reagan to the National Chamber Foundation, November 17, 1988)
“Unfair practices abroad” – this covers everything that could be a reason why American commodities sell worse abroad than those produced abroad sell in the USA. Reagan trenchantly deduces that this must be the case from the fact that the trade deficit is growing. The question of whether there are any corresponding commodities at corresponding prices that capital producing in the USA would like to sell abroad is irrelevant to this finding. These “practices” are said to have always existed; it’s just that the USA declared it didn’t mind because it didn’t need to export. Now it minds – which just means that other states have allegedly failed to notice what the USA is entitled to: that with its growing share of world trade, it naturally also derives an automatically growing advantage from it. In order to come to this “conclusion,” all Reagan has to do is assume that his competitors are using the same methods that he himself uses. This isn’t difficult: a Kohl or a Thatcher also use their nation’s political power to the best of their ability to make the back and forth of commodities, capital and credit, work in favor of their national ability to pay. However, discovering this to be the reason for the criticized state of competition is a bit of a contradiction: Why should they be more successful than the USA in translating their political will into economic success?
The question is, however, what the USA suddenly wants from “trade.” The very idea underlying Reagan’s complaint that “foreign” capital is helping itself too much in the USA and “American” capital is helping itself too little abroad is a bit out of touch with a world market in which it is not simply a matter of “national” industries competing with each other in their own and other countries’ export markets. The movement of commodities across borders is now the result of capital investment worldwide; what is exported to where is the result of location decisions that arise from a comparison of countries as investment spheres. State criticism of “too many imports” or “too little exports” also asserts a point of view on the back and forth of commodities, capital and credit across borders, which has become a natural condition of life for every large company and every national economy, that does not coincide with the interests of any “industry” – not even necessarily with those that the state is supposed to “protect.” An American import restriction on car parts affects an “American” company that has relocated the production of spare parts to Hong Kong just as much as a “Japanese” company that wants to use the American market to sell its cars; and likewise the American importer who has been making a business out of importing these commodities. And the introduction of steel quotas, for example, may protect part of the domestic steel industry; for steel processors it increases costs. From the point of view of a “national economy,” there are no clear winners and losers when a government targets trade from the point of view of importing too much and exporting too little – so it is not thinking of them either, however much the whole thing may come across as “protecting domestic industry.”
Reagan’s fight against “unfair trade advantages” is therefore not about a “relapse” into the practices of former protectionist tariff policies. Nor is it about occasional import restrictions, such as those that were occasionally imposed by the USA: whether against agricultural products, especially from Central and Latin America, or against Japanese cars or European steel, with which the USA in the 1970s increased the price of exports that competed with American companies producing for the national market. All these measures were quite naturally based on the fact that the USA itself is not an export nation and did not even need to become one because its “exports” consisted of capital from the outset. Ever since the “export nations” began challenging the USA’s outstanding position as a capital exporter, they have discovered the need to compete against foreign national wealth with surpluses produced at home: and the aim is to (re)conquer spheres of investment for American capital, both in the countries that are supposed to “open up” and in third countries where both are competing with each other for “markets.”
Who’s damaging whom?
The desire to use trade to decide which nations are taking too much on the world market and where American business is entitled to more has a small catch. This arises from the above-mentioned circumstance that neither imports nor exports, whether of capital or commodities, can decide by themselves whether the business transacted in this way benefits the dollar, the deutschmark, the yen, or any other currency – so that it always remains somewhat undecided whether a punitive tariff or an import quota does not hurt the national economy more than it benefits it, and whether an enforced “liberalization” is really an advantage for US capital and not for its competitors as well. Consequently, all the steel quotas, import duties on car parts, etc., imposed by the USA were never simply about this; they were intended to act as a means of exerting pressure to “induce” the competition to further involve American capital in this business; “too many imports” served as an indicator that there was still a lot to be gained in this sphere for US capital; strictly according to the motto:
“The guiding principle of this policy is that it is more favorable to open foreign powers to greater U.S. exports than to close the U.S. market to foreigners.” (Report of the Council of Economic Advisers 1986, p. 122)
“More favorable” means that the USA itself, of course, will take any “protectionist measures” it deems necessary to prevent others from gaining “unjustified advantages”; but that it is always ready to talk if the other side gives in and makes arrangements that open up new business opportunities for US capital: whether it is in Japan’s telecommunications industry, in the Japanese banking system, or as a contractor for the European Airbus industry. The appropriate method for this is to negotiate “voluntary export restriction agreements,” supplemented where possible by promises such as Japanese car companies moving their production to the USA instead of exporting their cars, or the USA “allowing” the Japanese to import a certain amount of electronics in return for US companies being allowed to participate in this industry. In the case of steel, a classic comment by Secretary of Commerce Brock:
“The regulation (the introduction of steel quotas) promotes free trade because it forces other governments to abandon unfair trade practices.” (Archive of the Present,7 5.83)
On this basis, the US government “expresses its willingness to conclude market agreements with partner countries on the types of steel affected by the measures,” which then happened in 1985. Or like this:
“We find it intolerable that Japan is not opening its capital markets to our banks more quickly.” (Secretary of the Treasury Donald Regan in Tokyo in 1984)
No matter how aggressive the USA acts on such occasions, it is clear that every “protectionist measure” is also potentially damaging to its own economy. This is a fact that needs to be taken into account on the one hand and used diplomatically on the other to create the impression that the interests of the competition are being respected. After all, the aim is to do new and better business with them!
The agricultural market
In this back and forth of threats, blackmail, and offers, the agricultural market has become a permanent topic. This has to do with the fact that every capitalist state wants to use this sphere as part of its national wealth production and subsidizes permanent overproduction, the costs of which it seeks to reduce or (ideally) turn into profit by making this sector a successful export industry. For a long time, this was not a problem for the USA with the superior productivity of its agriculture: as the world’s largest agricultural exporter, it set the standards for agricultural production worldwide.
In the USA, too, subsidizing agriculture – also and especially for the purpose of promoting exports – is a permanent item in the national budget. The European Community, for its part, has increased its exports to the USA as it has become a surplus producer itself and has become a competitor with the USA on third markets. And not only that: third world countries are also becoming agricultural exporters. This increases the costs of this sector for the state in two ways: on the one hand, state subsidies increase – and on the other, a lot of credit based on the agricultural sector becomes non-performing, so the state has to step in again and again with its credit for failing agricultural banks and savings banks. The agricultural crisis is simultaneously making itself felt in the USA as a worsening of the credit crisis and thus as an attack on national credit – and this makes it completely intolerable for the USA that other countries are also contesting its right to offset costs through exports. There are no new “markets” to be conquered here; there is only the standpoint of mutual exclusion, which is being advocated by both sides with increasing vehemence. The bitter dispute over the export of hormone-treated meat with a ridiculous value of 100 million makes it clear that the states involved are concerned with fundamental issues that they do not want to see put up for discussion – and this is precisely where the firm decision to leave it at a “trade war” becomes apparent.
Protective tariffs for American free trade – The fight against the trade deficit
In this area, the USA achieved a lot against its competitors – and yet, from its point of view, the result was disappointing: no matter how many steel quotas and anti-dumping agreements were put in place, they did not change the trade deficit. As long as the dollar was high, the USA simply took the view that it was due to the bad will or lack of economic capacity of its competitors if their economies were unable to absorb more US commodities. Then it fell again and the trade deficit still didn’t change. How could it? After all, a change in the exchange rate does not simply turn a “domestic market” into an “export nation”; and it is not even possible to predict where the commodities that the USA would have to sell in order to compensate for its constantly increasing debt would come from and where they would “flow” to. For the US administration, this is no reason to lay down its arms when it comes to world trade. Last year, the USA countered the growing offensive of its competitors with two more counter-attacks: the free trade zone with Canada and the new trade law.
The former is expressly intended as a counter-move to the European single market. Within 10 years, all “tariff and non-tariff trade barriers are to be dismantled” (SZ, November 17, 1988), whereby the USA wants to secure trade with Canada, which already conducts three-quarters of its trade with the USA, as an exclusive sphere and at the same time reduce the annual trade deficit of 10 billion dollars.
The Trade Act catalogs all aspects of the economic, financial or trade policies of the USA's trading partners in terms of how they could potentially act as a restriction on American business. An “unreasonable trade practice,” according to this law, can be simply anything: “targeted export offensives,” “denial of rights to workers,” “foreign cartels” – simply anything that could save a foreign on capital operating costs that a US company has or grant it rights that a US capital does not have. The law has made the elimination of such “barriers” its duty: to this end, the Office of the US Trade Representative is instructed to scour all countries for such practices (i.e. to define what it wants to consider such a “practice” in the respective country), to endeavor to abolish them within three years and, if not successful, to adopt “retaliatory measures.” Such measures are also mandatory in the event of “violations of trade agreements or international laws” (under this law, the US government naturally decides when this is the case). Industries can demand the imposition of tariffs and quotas if they believe they have been harmed by imports, “even if the trade is fair,” but must prove that this serves the purpose of “positive adjustment assistance.” Anti-dumping duties are also planned, as are penalties for the abuse of American copyrights and for walling off American telecommunications (which are aimed at Japan). The Agricultural Export Enhancement Program is extended until 1990: the agricultural sector receives up to 2.5 billion dollars to finance surplus goods with which “American agricultural exports are to be made more competitive with subsidized products on third markets.” This is primarily directed against the EC, and the hormone meat dispute already has its own section: Meat import restrictions may be offset by just such restrictions. Furthermore, the US President is authorized to prevent the takeover of American corporations by foreign companies if this “poses a threat to national security”; and he is called upon to conduct negotiations with countries that have “trade surpluses due to currency manipulation.” This refers to South Korea and Taiwan (US Embassy America Service 8/88).
As offensive as the USA is in both cases of the free trade zone and the trade law, it is hard to overlook the fact that the world’s No. 1 power is acting like a fairly “normal” imperialist superpower here. The free trade zone – intended as a measure against “Fortress Europe” – aims to secure exclusive rights for the USA against Europe: a thoroughly defensive position for a power that once saw the establishment of a world market and the removal of all customs barriers and “trade obstacles” as a sure way to turn the world into a single investment sphere for US capital. And as much as the US formally asserts its position in the Trade Act that US law has sovereign authority to decide what other nations are allowed and not allowed to do at home, the meticulous list of all possible barriers in countries from Taiwan to the Federal Republic of Germany proves how dissatisfied the USA is after eight years of Reagan that this position gets so little respect from its friends and allies.
The success of eight years of Reaganomics: global economic crisis and ongoing disputes within the alliance
A popular accusation made against the USA by the second guard in the world economy was that it always refused to recognize that there was a connection between its budget, the high dollar exchange rate and the trade deficit. They were quite wrong: the USA did see a connection. However, not the one that the critics of the “high interest rate policy” always wanted to see: that the USA itself was to blame for the poor performance of its foreign trade. The USA liked to see things the other way around: that it was the fault of others if the high dollar was hurting its economy. First of all, it refused its competitors’ requests to curb speculation on the dollar; instead, it called on Europe and Japan to grow more themselves, to “liberalize” their economies and to cut superfluous social gimmicks in order to finally become the market for US products that they should be.
Then the dollar did fall nevertheless, and the US had to force itself to abandon its position of indifference to the effects of its dealings with economic and currency affairs under pressure from its competitors. So the dollar was declared the common problem child. No one wanted to risk the universally invoked “danger of a dramatic fall in the dollar” which could call into question the basis of all transactions involving credit and capital in which the global economic powers are so interested. Since then, people have been arguing about who is most responsible for the “stability” of the dollar: The Europeans and Japan, because they benefit from it? Or the USA, because it is constantly driving its devaluation? This dispute has not exactly been defused by the fact that both sides, in their practical dealings with credit and currency, are constantly producing new reasons why the credit may not “hold” after all. They have already caused a stock market crash – simply by giving the impression that perhaps the agreement on interest rates, support purchases and credit support measures was not so far off after all.
“But nobody knows how low the dollar has to fall,” we are now hearing. However: it must fall because it is falling anyway, but not uncontrollably and above all not so far that it could give the impression that there is no longer any interest in it as a ubiquitous means of business and basis of the world market. So it should stand in such a way that all interests are served by it: the financing of the American deficit, the foreign trade of all those involved, national and international credit...
One thing should be noted about all this fuss: the dollar has long since ceased to be the economic basis of the global market. The fact that it is and remains so is due to the constant support of the Big Seven. And this is not self-evident. After all, the revaluation of the deutschmark and the yen into alternative world currencies is a deliberate attack on the dollar in this function – and the same states that are promoting this are helping to ensure that the effect of this attack does not materialize?
They are; and at every economic summit, they invoke their common interest in ensuring that this remains the case, despite their massive economic differences. After all this, what the content of this common ground certainly does not consist of is clear: the “promotion of world trade in the general interest” and however the slogans at summits always go. The fact that competition must not have the last word on the dollar, when it is constantly questioning it, is precisely due to the political interest that the imperialist movers and shakers of the world market have in it. And this is due to the special historical case of the imperialist world powers agreeing after 1945 to jointly establish a world market, instead of fighting each other on it with all possible means as was normally the case. However, that was 40 years ago now. The political reason for this unification – for whatever reasons whoever may have participated at the time – still exists: it was precisely the decision to discover a common ground between all capitalist nations against their main enemy, the USSR, and on this basis to renounce the use of the last means of violent competition, namely the military, against each other. The economic starting point of the world market created in this way, on which everyone was dependent and committed – the dollar as the first and only hard currency – is gone. It has dissolved into the normal world market competition that was good for two world wars before the invention of the “system competition.” But because the political reason for unity still exists, the dollar cannot be allowed to disappear either. In any case, there is this much in common: that beyond the respective exchange rates of the dollar, deutschmark and yen, the common war program is financed by them!
A final conclusion:
a) It was never the intention to feed the American world peace program solely from the economic resources available to the USA at home. However, there has been a “transformation” in America’s use of the wealth of the whole world: From the self-evident nonchalance with which every capitalist increase in wealth after 1945 increased US wealth, to the program, carried out by mutual agreement with competitors, of securing the dollar as the basis of the global economy because it is no longer unquestioned. Since then there have been nothing but “crises” and no crisis: and no left-wing theorist of imperialism wants to notice that the USSR is the only reason there are only trade wars between the “enemy brothers” today.
b) What the USA has “learned” from this is that the special role it played after 1945, in which what it wanted politically coincided unquestionably with its economic means, is over. “Reaganomics” is the best proof that it has no intention of simply accepting this. So no way was it “not successful”! Nothing has changed in the view that the USA, because it is the world’s number one power, is entitled to this special position: After all, a power like the USA doesn’t cancel its program merely because it doesn’t work out. The contradiction of a world power that always asks whether it has enough dollars to be a world power is certainly not resolved with the answer: unfortunately not! Conversely, its rivals do nothing to prevent the USA from abdicating as the world’s economic No. 1 – and never miss an opportunity to point out that the NATO proviso is spelled differently today than it was 40 years ago.