Issue 99 of INTERNATIONAL SOCIALISM JOURNAL Published Summer 2003 Copyright © International Socialism

Analysing Imperialism

CHRIS HARMAN

The US assault against Iraq has seen protests in virtually every major city in the world, not merely for peace, but against 'imperialism'. The word has been used by the unlikeliest of people to express their abhorrence at US government actions.

But there is not always clarity as to what imperialism means at the beginning of the 21st century. To some it represents the culmination of the development of capitalism over the last two and half centuries--the 'highest stage' of the system. To some it represents simply a grab for profitable raw materials or investment which the system as a whole could manage without, or a drive to increase the profits of just one section of the US ruling class, the military-industrial complex. There are even some who hold that states trying to conquer other states is an archaic practice followed by certain political leaders in contradiction to the dynamics of the system as whole. So Michael Hardt, co-author of the highly influential Empire, writes that 'the US is fast becoming an imperialist power along the old European model, but on a global scale', but hastens to add that 'business leaders around the globe recognise that imperialism is bad for business because it sets up barriers that hinder global flows'.1 And Bernard Cassen, the leader of ATTAC in France and a key figure in the World Social Forum, claimed shortly before the attack on Iraq, 'Whether war breaks out or not, B-52s and special forces will not alter poverty in Brazil or hunger in Argentina'.2

The disagreements were between people who were agreed in resisting the latest act of aggression by the world's most powerful--and most dangerous--state. But they remain important in determining how we fight back in the long term. If imperialism is merely a set of state actions cut off from the wider dynamic of the system, then pressures to reform the state can bring peace. It is even possible to see the drive to war as something standing in opposition to the wider trend of the system--whether you call this, as apologists for the system do, 'free trade', or as some opponents do, 'empire'. By contrast, if it is organically linked to the system as a whole, you have to overthrow the system to remove the threat.

Part 1: Classic theories of imperialism

The best known statement about the centrality of imperialism to the system is Lenin's pamphlet Imperialism: The Highest Stage of Capitalism. It was written in the midst of the First World War. Its aim was to be a 'popular outline', showing how the resort to war was a product of the 'latest stage of capitalism'--the original subtitle to the work:

The capitalist powers, he points out, have partitioned the world between them on the basis of 'a calculation of the strength of the participants, their general economic, financial, military and other strength'. But 'the relative strength of these participants is not changing uniformly, for under capitalism there cannot be an equal development of different undertakings, trusts, branches of industry or countries'. A partition of the world that corresponded to the relative strength of the great powers at one point no longer does so a couple of decades later. The partitioning of the world gives way to struggles over the repartitioning of the world:

Lenin's theory was not just a theory of military conflicts between the great powers. He insisted these conflicts were a product of changes in capitalism itself:

But once this stage is reached, competition between the giant corporations is no longer based simply--or even mainly--on the old purely market methods. Taking control of raw materials so that rivals cannot get them, blocking rivals' access to transport facilities, selling goods at a loss so as to drive rivals out of business, denying them access to credit, are all methods used: 'There is no longer a competitive struggle between small and large, between the technically developed and the technically backward. We see here the monopolists throttling all those who do not submit to the monopoly, to its yoke, to its dictation'.7 'Monopolies bring with them everywhere monopolist principles: the utilisation of "connections" for profitable deals takes the place of competition in the open market'.8

And central among the connections are those linking the monopolies based in a particular country to its state. Lenin quoted the experience of four major industries to justify this account--steel and zinc, oil, and the electrical and merchant shipping of Europe and North America. From these he concluded that the development of monopoly at home has its corollary in the use of state power to establish influence abroad. The competitive struggle between the monopolies became a struggle between their states to control different parts of the world:

This found expression in the division of the world into the great empires--the British, the French, the Russian, the Belgian and the Dutch, which divided most of Asia and Africa between them in Lenin's time. But Lenin was insistent that imperialism involved more than the division between the great powers of what we would today call the 'Third World'. He criticises Karl Kautsky for writing, 'Imperialism...consists in the striving of every industrial capitalist nation to bring under its control or to annex all large areas of agrarian territory, irrespective of what nations inhabit it'.11 The imperialist division of the world, Lenin insisted, was increasingly centred on industrial areas: 'The characteristic feature of imperialism is precisely that it strives to annex not only agrarian territories, but even most highly industrialised regions (German appetite for Belgium; French appetite for Lorraine)'.12

Lenin's fellow Bolshevik, Bukharin--whose Imperialism and World Economy was written shortly before Lenin's work, but which appeared afterwards, with an introduction by Lenin--made the argument just as forcefully:

Lenin and Bukharin's works were produced in the middle of the First World War, and their aim was to explain the forces behind it. Their enduring power lies in the way in which they still provide an explanation, like no other, of the whole of what has been called the '30 years war' of the 20th century--the great military clashes that tore Europe apart, causing a total of 50 million deaths and devastation all the way from the channel to the Volga, and sucking into the maelstrom hundreds of millions of people in the most distant stretches of the world. It was an explanation that spurred opponents of war in Europe and North America to challenge not merely the militarists, but also the economic system as a whole. And it spurred a whole generation of people fighting to shake off the shackles of empire in the Third World to see some sort of identity of interest with the workers' movements of the advanced countries.

The attacks on the theory

The sheer power of this theory of imperialism has led to repeated attempts to refute it. Since Bukharin became a non-person during the high tide of Stalinism,14 most of the attacks--and defences--have been directed at Lenin's pamphlet.

The attacks have generally concentrated on two interlinked fronts. They have denied any empirical link between the great expansion of the Western colonial empires and the dynamics of capitalism. And they have argued that peaceful free trade rather than a militaristic struggle to control chunks of territory is the most profitable course for the majority of capitalists to pursue.

The first argument is not difficult to deal with. The great period of growth of the Western empires was the last quarter of the 19th century. Some European powers (Britain, Holland, France) already had empires, inherited from a previous phase of capitalist development, but not until the 1880s did they seek to divide all the world between them. In 1876 no more than 10 percent of Africa was under European rule. By 1900 more than 90 percent was colonised. In the same period Britain, France, Russia and Germany established wide spheres of influence extending out from colonial enclaves in China; Japan took over Korea and Taiwan; France conquered all of Indochina; the US seized Puerto Rico and the Philippines from Spain; and Britain and Russia agreed to an informal partitioning of Iran.

This was the period in which the export of capital became a central feature of the economy of Britain, still the world's dominant capitalist country. Total investment in foreign stocks rose from £95 million in 1883 to £393 million in 1889. It soon equalled 8 percent of Britain's gross national product and absorbed 50 percent of savings.15 Its biggest colony, India, accounted for 12 percent of its exports of goods and 11 percent of its capital exports, while providing a surplus to Britain's balance of payments that could help pay for investments elsewhere in the world.16 At the same time, many of the raw materials required for the most technologically advanced industries of the time came from colonial areas (vegetable oils for margarine and soap manufacture, copper for the electrical industry, rubber and oil for the fledgeling automobile industry).

The 1870s and early 1880s had been a period of depressed markets, falling prices, and low profits and dividends in Britain. With the growth of foreign investment this 'great depression' came to an end.17

It is not true that the exports of capital, let alone of goods, went to the colonies. Much went to the US, and quite a lot went to Latin American countries like Argentina. But what mattered for both politicians and industrial interests was that 'Britain ruled the waves'. There was a global empire, in which direct dominance in some parts of the world contributed to hegemony--and defence of economic interests--in other areas.

As I have put the argument elsewhere:

Where British capitalism went, others wanted to follow and set about grabbing what they could. It was usually a case of first come, first served. France took huge swathes of North and West Africa, Belgium's king seized a vast area of the Congo region, and the Dutch consolidated their scattered holdings in the East Indies into a modern empire. But the one country in Europe that was beginning to overtake British capitalism industrially, Germany, was the last to join the race, only getting Tanganyika (the main part of modern Tanzania), South West Africa (Namibia), Cameroon, Togo and Rwanda-Burundi as consolation prizes. By the turn of the century there were powerful voices in German industry connected to the National Liberal Party (after 1918 the National People's Party) who were arguing that German business could only compete globally if Germany had more colonies--or at least a sphere of influence stretching through eastern and south eastern Europe.

Whichever way you look at the 1890s and the 1900s--or for that matter the 1920s and the 1930s--you find that empire was seen as a positive economic advantage by capitalist classes. There would be differences of opinion over the advantages to be gained from particular imperialist adventures. There was no great divergence about the benefits of empire in general.

But this still leaves open the second objection. Was it really in the interests of businessmen to see their taxes burnt up in wars that disrupted markets? Would it not have been preferable for them to have forced through policies based on free trade and peaceful competition for markets, pushing aside those narrow interests which benefited directly from arms spending and colonies?

This was essentially the argument of one of the first accounts of imperialism, produced by the English liberal economist Hobson, whose work was published in 1902. He saw imperialism as the product of one interest group, those connected with certain financial institutions. These opted for guaranteed returns of interest on overseas loans rather than taking the risks involved in industrial investment at home, and welcomed colonial expansion as a way of making sure their state guaranteed the safety of their investments:

He identifies these as being the arms manufacturers, 'the great manufacturers for export trade', 'the shipping trade', but insists that 'by far the most important economic factor in imperialism is the influence relating to investments... The period of energetic imperialism has been coincident with a remarkable growth in the income from external investments... To a larger extent every year Great Britain is becoming a nation living upon tribute from abroad, and the classes who enjoy this tribute have an ever-increasing incentive to employ the public policy, the public purse and the public force to extend the field of their private investments, and to safeguard and improve their existing investments.'

So one small section of the capitalist class has, in effect, turned the state to its own advantage, despite the harm it does to the rest:

This includes a layer of rentiers--bond holders who receive their dividends regularly without ever having to worry themselves with productive or commercial activity of any sort. But at the centre of it is something 'still more dangerous'--'the special interest of the financier, the general dealer in investments...the great financial houses, who use stocks and shares not so much as investments to yield them interest, but as material for speculation in the money market'.

He adds, in a passage that shows hostility to 'finance' rather than capitalism as a whole, which has the potential to lead in a dangerous direction:

The alternative to imperialism, on Hobson's reasoning, was not the revolutionary overthrow of capitalism, but governmental action to expand the domestic economy and defend the interests of industry against finance. Such action would form the basis of an alliance uniting trade unions and the great majority of business interests in opposition to the rentiers and the finance capitalists.

Ten years later Karl Kautsky, the veteran theorist of the German Social Democratic Party, came up with a very similar account of imperialism. The political biography by Massimo Salvadori summarises his view:

Along with finance capitalists, Kautsky also saw the arms producers as having an interest in imperialism and war. But he maintained that 'the economic costs of rearmament, while they favoured the development of some sectors of industry, were detriments to others'.22 'The source of the political power of finance capital, which aimed at subjugating all society, could be traced back to its union with militarism and the bureaucracy'.23

From his view that capitalism as whole had no interest in partitioning the world into rival colonies, Kautsky drew the conclusion that it was approaching a new stage. He developed this argument in an article he wrote in 1914 in which he saw the colonisation of the previous three decades as a result of industrial capitalists trying to secure for themselves raw materials and markets.

'Capitalist accumulation in industry can proceed freely only when the agricultural region which supplies its raw material and consumes its products is constantly being enlarged.' There were various ways to do this. One was called 'imperialism', especially fostered by the system of investing capital in agrarian countries which encouraged 'efforts to reduce these lands to a state of political dependence'. 'The effort to subdue and hold agrarian regions' had caused serious conflicts between the great capitalist powers which led to 'tremendous competition in armaments' and 'long-prophesied world war'.

But, he went on to argue, 'this phase of imperialism' was not necessary to the continued existence of capitalism:

Monopolies, the state and finance capital

Lenin's Imperialism is very much a critique of Kautsky. It rests on three planks.

First, there is the argument that the whole system is in a monopoly stage. Monopolies are not just, as are Hobson's financiers or Kautsky's finance capitalists, individual elements within each national economy. They are the central, dominating forms of capital, dragging other sections behind them.

Second, in such a situation the political 'influence' they exert is not an accidental feature. It is intrinsic to the form capitalist competition now takes. No large capital can survive unless it has connections to the state and uses these to expand at the expense of other capitals. Or, to put the argument another way, capitalism is never simply an abstract system of free flowing capital. The system has always been composed of different individual capitals, each run by people who attempt to use their connections with each other and with the state to cheat the market. But under the 'free market' capitalism of Marx's time, none was big enough to influence the dynamic of the system as a whole. By contrast, in Lenin's picture individual capitals dominate each major sector of production within each country and are able, through their connections with each other and the state, to impose a whole new dynamic of political and military expansionism on society as a whole.

Finally, Lenin backs up his points by his empirical accounts of the development of major industrial concerns. It is his ability to marshal such arguments and facts that enables Lenin to insist so convincingly that any agreement between the great capitalist powers at the end of the First World War will give way to new conflict and renewed war.

There are, however, certain subsidiary problems with the way Lenin presents his arguments that leave a back door open for arguments of the Kautsky sort.

In his pamphlet Lenin readily acknowledges his use of Hobson's work and that of the Austrian Marxist economist Hilferding, who was also an important influence on Kautsky's views on imperialism.25 Lenin is critical of both. But he puts at the very centre of his analysis Hilferding's use of the phrase 'finance capital' to describe the dominant feature of the system in its imperialist phase, and he accepts much of Hobson's description of the dominant and parasitic role of finance within this.

Hilferding had carried through a very important account of the changes in capitalism in the quarter of a century after Marx's death in 1883--the rise of the joint stock company in place of the individual entrepreneur, the growing importance of the banks as a source of investment, and the role of the state in protecting the markets of already mature national capitalisms. There was, he argued, a merging together of financial capital and industrial capital to produce a synthesis of the two.

But there was a central ambiguity in Hilferding's own use of 'finance capital'. At some points it meant a merger of finance and industry--or at least financial interests lubricating the merger of industrial concerns: 'The banks have to invest an ever-increasing part of their capital in industry, and in this way they become to a greater and greater extent industrial capitalists. I call bank capital...which is actually transformed in this way into industrial capital, finance capital'.26 'Industry becomes increasingly dependent upon bank capital, but this does not mean that the magnates of industry also become dependent on banking magnates'.27

On this basis giant trusts and cartels were emerging that could dominate whole sectors of industry. They leaned on the state to protect their domestic markets, so enabling them to raise their prices at home--and attempt to conquer foreign markets with lower prices. It was this pressure of the combined finance-industrial capitals that changed the whole attitude of capital to the state. 'It is not free trade England, but the protectionist countries, Germany and the United States, which become the models of capitalist development,' wrote Hilferding.28 Far from continuing with the traditional liberal notion of a minimal 'night-watchman state', the great trusts wanted a state with the power to widen its boundaries so as to enlarge the market in which they could gain monopoly profits: 'While free trade was indifferent to colonies, protectionism leads directly to a more active colonial policy, and to conflicts of interest between different states'.29 The drive for empire was endemic in the most modern forms of capitalism. And since British, French and, to a lesser degree, Dutch and Belgian capitalism had already carved the world up between them, the expansion of German capitalism inevitably meant military clashes with them.

But Hilferding also used the term 'finance capital' in a way resonant of Hobson's description of finance as something with interests in opposition to those of the mass of industrial capitals:

The finance capitalists were then seen as the force pushing for colonies and wars, even while the industrial capitalists want to hold back. In a review Kautsky paraphrased Hilferding as calling finance capital 'the most brutal and violent form of capital'.31

But the ambiguity in Hilferding's formulation enabled him to draw a directly contradictory conclusion and so say that the rise of finance capital has an ameliorative impact on the rest of the system, by bringing about a growing organisation of the national economy, making it less subject to slumps, booms and market frenzies: 'The mass psychoses which speculation generated at the beginning of the capitalist era...seem gone forever'.32 Within a few years Hilferding was developing this into a whole theory of 'organised capitalism', supposedly on its way to banishing major economic crises and the inevitable drive towards war forever.33

The use of the term 'finance capital' can still lead to such confusions today. Those who preach very limited reforms of the present system, like Will Hutton, blame the problems of British capitalism on the political dominance of City of London financiers, while a section of the anti-globalisation movement see a 'Tobin tax' directed against the cross-border financial flows as the way to deal with economic crises and world poverty.

Lenin was scathing about the trend in Hilferding's politics, describing him as an 'ex-Marxist'.34 But he took over the term finance capital and puts it at the centre of his own theory. In doing so he left his own work open to ambiguous interpretations. His intention was to insist that the tendency towards monopoly meant that the core capitals in each country were driven to imperialist policies of dividing and redividing the world. For this reason, he criticised one of Hilferding's definitions of 'finance capital' as 'capital controlled by banks and employed by industrialists' as 'incomplete':

But the phraseology of certain other parts of the pamphlet has allowed people to interpret him as saying, rather as Hobson and Kautsky did, that financial interests and the banks were mainly responsible for imperialism. This was especially so when, basing himself on Hobson, he insisted on the 'parasitic' character of finance capital, writing of 'the extraordinary growth of a class, or rather of a social stratum of rentiers, ie people who live by "clipping coupons", who take no part in any enterprise whatever, whose profession is idleness. The export of capital, one of the most essential economic bases of imperialism, still more completely isolates the rentiers from production, and sets the seal of parasitism on the whole country that lives by exploiting the labour of several overseas countries and colonies'.36 This stress on the 'parasitism' of finance capital allowed some people who supposedly based themselves on his work to claim in the decades after his death that it was possible to form anti-imperialist alliances with sections of industrial capital against finance capital--that is, to fall back precisely into the Kautsky policy that Lenin attacked so bitterly.

It also seemed to make the whole theory of imperialism rest upon the key role of the banks in exporting financial capital. But this did not fit with the picture even when Lenin was writing, let alone in the decades afterwards. The export of finance--and of the rentiers--was a central feature of British capitalism in the two decades before Hobson wrote. But Britain no longer 'showed the future' to other capitalist countries, as it had in Marx's day. Its new competitors, like Germany and the US, had leapt over Britain when it came to the concentration and monopolisation of industry. In the German case it was the industrial combines, especially those in heavy industry, that sought to expand beyond national frontiers by the establishment of colonies and spheres of influence. Moreover, the characteristic feature of the US and Russian economies in this period was not the export of capital but the inflow of funds from other capitalist countries (although here there was some re-export of capital). On a strict reading of Lenin's Imperialism these would seem not to be imperialist states at all at the time of the First World War, even though both had joined in the partitioning of the rest of the world in the previous quarter of a century.

This focus on financiers is even more problematic when we come to the quarter of a century after Lenin wrote. Britain began to go down the German road with the formation of its own great industrial near-monopolies (ICI, Unilever, etc ), while it was heavy industry that played the key part in pushing the redivision of Europe in Germany's interests in the 1930s. And, as Tony Cliff pointed out, Japanese imperialism followed a policy of industrialising parts of its Taiwanese, Korean and Manchurian colonies as an extension of its own economy.37 Overall Cliff noted, 'While in the years 1860 to 1914 the quantity of capital invested abroad by the advanced capitalist countries grew almost uninterruptedly, from 1914, by when imperialism had reached maturity, the quantity of capital invested abroad never rose above the level of l914 and even declined below it'.38

What is more, far from the imperialist powers becoming deindustrialised parasites living to an ever increasing extent off incomes obtained from production elsewhere in the world, they experienced the expansion of new industries in the years between the wars, which increased the gap between them and most of the rest of the world. Yet they also remained intent on imperialist expansion, with Britain and France grabbing most of the Middle East and the former German colonies, Japan expanding into China, and Germany then beginning to carve out a new empire in Europe.

Lenin, by leaning excessively on Hobson's interpretation of Britain before 1900, damages his own argument.

Bukharin and the drive to war

Bukharin's account of imperialism holds up much better, despite being much less widely known. He uses the category of 'finance capital' repeatedly in Imperialism and World Economy. But he explicitly warns against seeing it as something distinct from industrial capital.

'Finance capital...must not be confused with money capital, for finance capital is characterised by being simultaneously banking and industrial capital'.39 It is inseparable, for Bukharin, from the trend towards domination of the whole national economy by 'state capitalist trusts':

The export of capital to satisfy the desire of rentiers is only one subordinate feature of a system in which giant industrial firms increasingly linked to the state struggle with each other in international competition. This competition takes place on three different fronts--for commodity exports, for raw material and for capital exports: 'Those three roots of the policy of finance capitalism, however, represent in substance only three facets of the same phenomenon, namely of the conflict between the growth of productive forces on the one hand, and the "national" limits of the production organisation on the other'.41

In his later Economics of the Transformation Period, Bukharin suggests that 'finance capitalism' tends towards a new imperialist stage of capitalism, state capitalism:

Once this stage is reached 'there is a struggle of economies against each other, a war of capitalist competition. The form of this competition can be widely different. The imperialist policy...is one form of this competition.'

War now becomes central to the system, arising from the competition between the 'state capitalist trusts', but also feeding back into and determining their internal organisation:

Speaking in 1922, he argued:

Bukharin here foreshadows the version of imperialism that characterised the late 1930s and the 1940s. But in one respect he was weaker than Lenin--in terms of drawing the political consequence of his theory when it came to the countries oppressed by imperialism.

Lenin, imperialism and the colonial countries

Imperialism: The Highest Stage of Capitalism had had an enormous impact on the colonial liberation movements--and on those showing solidarity with them in the imperialist countries. This was partly because it was a clear call for workers within imperialist countries to oppose the policies of their own rulers. It was also because it was read in association with other writings by him on the right of peoples to self determination.

In these Lenin had dealt with the political implications of imperialism. He saw that the revolt of the oppressed nationalities within the great empires that dominated the world could tear them apart. These revolts could arouse much wider layers of the population to action and weaken the Western capitalist states running the great empires--and this was true even if the revolts were led by remnants of the old pre-capitalist exploiting classes or by the newly emerging bourgeois groups. What mattered was that these local exploiting classes were politically dominated by the states of the great empires, and in fighting back weakened those states. Revolutionary socialists had to encourage and aid such fightbacks by unconditionally supporting the right of political self determination in the face of imperialist oppression.

Lenin was criticised in the years before 1917 by other revolutionaries, such as Rosa Luxemburg, Pyatakov and Bukharin. They said that political independence under the leadership of such exploiting groups would be meaningless, since they would still be economically dependent upon the more powerful imperialist ruling classes within a world capitalist system.

This was neither here nor there for Lenin. The struggle for national self determination was a political struggle, directed against concrete oppressive political institutions, the world's most powerful states.

He spelt this out strongly after the Dublin rising against British rule in 1916:

He was insistent on the difference between political independence and economic independence. One was achievable through political struggle, and the other was a utopian demand once capitalism had established a world market, so making production in any one state, even the most powerful, dependent on production elsewhere.

But the potential forces for political struggle were enormous. Lenin prophesied rebellions for the rights of oppressed nationalities within all of the great empires--and his prophecy proved correct in the years after 1916 when such rebellions took off in Ireland, India, Egypt and Indonesia, and against the European and Japanese 'concessions' in China. And his insistence that the workers' parties on the left had unconditionally to support such rebellions attracted towards the newly formed Communist International a number of important activists from the colonial movements.46 By the mid-1920s Communist advisers were playing a key role in nationalist armies fighting for control of southern China, and over the next three decades Communists provided with a bowdlerised version of Lenin's theory by Stalin were able to influence some important national liberation movements in the colonial world (although, they could lose such influence when, as in during the Quit India movement of 1942, Stalin's influence led them to oppose national liberation struggles).

But there was one big problem with Lenin's theory when it came to the colonial world. Imperialism: The Highest Stage of Capitalism held that the export of capital to the colonies would lead to their industrial development:

One of Lenin's earliest works, The Development of Capitalism in Russia, had been directed against those who denied the possibility of capitalist development. He continued to stand by this position when he wrote Imperialism. It was this belief that industrial development was increasingly in the colonies that led him to describe the colonising countries as 'parasitic'.48

However, the attraction of Communism to many in the national liberation movements had been because of the perception that capitalism was not producing appreciable industrial advance. In many Third World countries there was a very large urban middle class which suffered from impoverishment, precarious job opportunities and unemployment, as well as political marginalisation by the colonial set-up. The lack of willingness of movements dependent on the local bourgeoisie to wage a consistent and determined struggle against colonialism could attract some of the urban middle class to Communism--provided Communism addressed their concerns about economic development as well as political independence. A debate over this issue arose in the Communist International in 1927-1928, just before complete Stalinisation destroyed any possibility of rational debate within it.

Jane Degras has written:

Kuusinen, Stalin's man in the Comintern at the time, then intervened to insist, 'If it were true that British imperialism had really turned to the industrialisation of India, we should have to revise our entire conception of the nature of imperialist colonial policy'50--without, of course, recognising that any 'revision' would have meant agreeing with Lenin's writings! He then went on to claim, 'Investment was not industrialisation... Britain was determined to destroy the industry of India and thrust the proletariat back into the villages; it has found its agent in Gandhi.'

Two British delegates, Arnot and Rothstein, argued back, 'Imperialism by its own contradictions fostered industrial development in the colonies that was going to compete with it, thus transferring domestic contradictions onto the world scene'.51 But the theses of the Congress were adamant: 'There is an objective impossibility of a non-capitalist path of development for the backward countries... The specific colonial forms of capitalist exploitation...hinder the development of the productive forces of the colonies'.52 This argument became cast in stone during the following decades of Stalinism, when it was used to argue that the only way colonial and ex-colonial countries could develop economically was to follow the pattern established in the USSR.

There was a convergence between this current of ideas rooted in the Stalinist tradition with another current that had arisen, more or less independently, in Latin America. Direct colonial rule had ended in most of the region in the 1820s. But in the first decades of the 20th century the conditions of life of people in large areas of it were hardly different to those for the colonised peoples of Africa and Asia. There were impoverished peasantries, urban bourgeoisies unable fully to wrest power from landed oligarchies, and a large, educated petty bourgeoisie which resented its inability to achieve lifestyles like those that existed in North America and Western Europe.

Movements began to arise in the inter-war years that saw the main obstacle to economic advance as lying in the stultifying influence of British and American imperialism. Haya de la Torre, son of an unsuccessful businessman, formed the Alianza Revolucionaria Peruana (APRA) in 1924 around a programme of nationalism and anti-imperialism which gathered wide support from both the middle class and workers in Peru, and encouraged middle class activists in other countries to follow suit: 'For at least 20 years, from 1930 to 1950, Haya de la Torre was the anti-imperialist guide of a whole generation of enlightened bourgeois and even of the proletariat'.53

The crisis of the early 1930s hit the Latin American economies--and their ruling classes--very hard. From 1900 to 1930 they had, if anything, gained slightly from trends in world trade.54 Now they saw the price of their exports collapse. As economic crisis turned to political crisis, sections emerged within the ruling class who formed blocs with sections of the middle class, and in some cases certain leaders of the labour movement, to push for an economic policy designed to shift resources from the production of raw materials and food to industrialisation.

As Roxborough writes:

Governments like that of Vargas in Brazil and then that of Peron in Argentina moved strongly in the direction suggested by such arguments, but so did others, so that for a time the policy was virtually the orthodoxy. Such governments were not in any serious sense hostile to US or Western European capitalism. But their policies did face varying degrees of opposition from powerful landowning classes who had commercial and financial links with Britain or the US, and it was possible for the 'populist' politicians to give a nationalist and supposedly anti-imperialist tinge to their policies. Co-opting the APRA-type nationalism of the middle classes, they interpreted history before and after independence from Spain as being one of imperialist domination. This enabled them to get their way in pushing recalcitrant sections of capital into line, denouncing them as 'anti-national', while enjoying the support of other sections who stood to gain massively from industrialisation policies. It also enabled them to fragment the working class movement between those who, putting class interests first, denounced their domestic policies (and the governments as 'fascist', or at least 'semi-fascist'), and those who justified being co-opted by those governments on the grounds that they were 'fighting imperialism'.56

The Second World War: the confirmation of the theory

The Second World War was the great and barbaric confirmation of the classic theory of imperialism. Lenin and Bukharin had insisted, in opposition to people like Kautsky, that the great capitalist powers would be forced to move from peace to war as they strove to partition and repartition the world. And this is what happened in the mid to late 1930s in response to unprecedented economic crisis. Each national capitalism turned to a greater or lesser degree to an integration between national capital and the national state--and the other side of this 'state monopoly capitalism' was the use of 'protectionist' measures to restrict direct market competition from foreign capitalists. World trade, which had risen fourfold between 1891 and 1925, by 1932 had fallen back to the level of 1905. The imperialism of countries seeking to penetrate distant parts of the world through capital exports turned into the imperialism of countries trying to form tight trading blocs in opposition to each other. But capitalist states could not simply undo their dependence upon components and materials from outside their own borders. This put a greater premium than before on the national state being able to exert direct political influence to control resources beyond its own borders--to imperialism of one sort or another.

The result was a recurrence, on a more intense basis, of the tension that had culminated in the First World War. The established colonial powers, especially Britain and France, were able to rely upon their existing empires--enlarged by the seizure of German colonies and much of the Middle East in the aftermath of the First World War--to create political-economic blocs, dominated by their own currencies (known respectively as the sterling area and gold bloc). The US was able to increase its influence, particularly in Latin America, after buying up many British investments there during the First World War. The world's second industrial power, Germany, was restricted to an even narrower national territory than in 1914. It had lost its colonies, and France had made a series of alliances in Eastern Europe (the 'Little Entente') directed at reducing German influence there, and even over German-speaking Austria. In the Far East expanding Japanese capitalism similarly felt penned in by the colonial rule exercised by the French over Vietnam, the British over Malaya, the Dutch over the East Indies (present day Indonesia) and the US over the Philippines--as well as by the continuing British and French 'concessions' in China.

The rulers of Germany and Japan went for political options that, as well as repression of the working class movement at home, subordinated individual capitalists to programmes of national capitalist accumulation imposed by the state. The Nazi government used dictatorial political powers to impose regimentation on the economy. The major capitalist groups remained intact. But from now on they were subordinated to the needs of an arms drive which they themselves supported. Armaments and the expansion of heavy industry drove the whole economy forward, providing markets and outlets for investment. However, there was one major problem with any such policy. Germany was not a self contained economic unit. The only way to overcome instability in raw material sources was to expand the boundaries of the German Reich so as to incorporate neighbouring economies, and to subordinate their industries to the German military drive. The logic of state-directed monopoly capitalism led to a form of imperialism Lenin had referred to in 1916 and which was central to Bukharin's theory--the seizure of 'highly industrialised regions'.57 Beyond a certain point such expansion led to inevitable clashes with other great powers who feared threats to their own spheres of influence and empires. As they reacted by resorting to armed force, the German regime in turn had to direct even more of the economy towards arms--and reach out to grab new territory--in order 'defend' the lands it had already grabbed.

As I have written elsewhere:

The rulers of the existing French and British empire were driven to resist. Many were reluctant to do so with the experience of the previous world war in mind. They feared that the cost of another would eat up their already diminished foreign investments, they were terrified of a repetition of the revolutionary upheavals that had threatened 20 years before, and they saw the rapidly industrialising USSR as nearly as dangerous as their old German rival. They hoped that somehow a German imperialism controlling the core of north western and central Europe would be able to coexist with their own domination of vast tracts of Africa and Asia. But in the end they were forced to fight. For Britain and France what was involved was no longer a struggle to grab new sources of surplus value, but to hang on to what they already had. They had to fight together against German imperialism if their own imperialisms were not to suffer. Their alliance was joined in the summer of 1941 by Russia, once the logic of German expansion led it to move on from victory over Poland, Belgium and France to push into the Ukraine and south east towards the oil of Baku. A few months later the US was also forced into the war as the logic of Japanese imperialism led it to try to grab the poorly defended Far Eastern possessions of all the Western capitalisms.

The alliance against Germany and Japan overshadowed the clashes between the other imperialisms. In the 1920s there had been predictions of a major clash between the US and Britain both by some within the British Foreign Office and by Leon Trotsky. The predictions were not fulfilled. There were sharp clashes of interest between the British and US governments in the course of the Second World War. They jostled for influence over Saudi Arabia with its oilfields, and there was bitter resentment by British ministers like Eden over the way the US effectively made British capitalism liquidate overseas investments in order to pay its bills for US weapons and food.59 But greater hostility to the demands of German and Japanese imperialism led to British imperialism accepting, grudgingly, a subordination to US interests.

Part 2: Imperialism in the Cold War years

The clash of imperialisms in the 1930s had taken the form of the conflict between Britain and France with their diffuse global empires and Germany as it built a continental empire in Europe. With the defeat of Germany, a new conflict in some ways similar grew up between the two great victors of the war.

The US had aspirations for its industries, the most advanced and productive in the world, to penetrate the whole world economy through 'free trade'. The Western European powers, exhausted by the war, were in no position to challenge it directly (although British politicians often expressed a private desire to be so). But the other victor, the USSR, was in such a position. Its ruling bureaucracy had embarked with a degree of success on the forced industrialisation of their country in the late 1920s by subordinating everything to accumulation of means of production, building a state capitalism of their own at the expense of the gains made by workers and peasants in the revolution of 1917. This gave them the means, through large and powerful land forces, to dominate virtually the whole of northern Eurasia, from the borders of Western Europe right through to the Pacific. But with levels of industrial productivity less than half those of the US, they were in no position to sustain themselves in economic competition through free trade.

In 1947 and 1948 they decided to contest the US attempt at global hegemony by blocking its access to the economies under their control--not just the territory of the old Russian Empire, but also the countries of Eastern Europe which they subordinated to their military-industrial goals. The US, for its part, rushed to cement its hegemony over Western Europe through finance to pro-American Christian Democrat and Social Democrat political parties, a Marshall Plan for reviving European industry within parameters favourable to US interests, the creation of the NATO military alliance and setting up US bases in Europe.

The developing conflict cannot be explained by economics as often understood, in terms simply of profit and loss accounting. The armaments bills of both great powers soon exceeded anything their rulers could hope to gain from the increased exploitation of the lesser powers under their control. At no stage in the 1940s or 1950s did total US overseas investment (let alone the much smaller return on that investment) exceed US spending on arms. Even in the period of 'disarmament' prior to the outbreak of the Korean War 'military expenditure totalled something like $15 billion a year. Thus it was not only 25 times as high as the sum of private capital exports, but it was also many times greater than the sum of foreign aid. Marshall aid did not total more than $5 billion in any one year'.60

Thirty years later US overseas investment had grown many times over. The total was now about $500 billion ($200 billion of direct investment plus bank loans worth perhaps $300 billion). On top of this there were something like $300 billion of foreign assets controlled by US multinationals.61 Total expenditure on 'defence' had also risen to around $200 billion--less now than total overseas investment, but still substantially more than the profits that could possibly accrue from that investment.

The picture for the USSR will have been somewhat similar. In the years 1945-1950 it pillaged Eastern Europe, removing plant and equipment wholesale from East Germany and Romania, and forced the region as a whole to accept prices below world market levels for goods going to the USSR proper.62 But even in that period the economic gains from this must have been substantially less than the escalation of the USSR's arms budget once the Cold War had well and truly begun. And from 1955 onwards, fear of rebellion in Eastern Europe led the Soviet government to relax the direct economic pressure on its states. Their pattern of economic development was still to some extent determined by the strategic demands of the USSR, but direct exploitation seems to have virtually disappeared.

The imperialism which necessitated arms spending was not the imperialism of a single empire in which a few 'finance capitalists' at the centre make huge super-profits by holding billions of people down. This, after all, was a period in which international trade was much less important than it had been before 1914--an index of trade in manufactures as a proportion of world output fell from 1.2 in 1914 to 1.0 in 1930, and then slumped to 0.7 in 1940 and 0.6 in 1950.63 Rather it was the imperialism of rival empires, in which--as Bukharin had described it in 1916--the combined capitalists of each ruling class had to divert funds from productive investments to military expenditure in order to ensure that they hung on to what they already possessed.

The calculation in both Washington and Moscow was simple. To relax the level of military spending was to risk losing strategic superiority to the rival imperialism, enabling it to seize territory. So the Russians lived in fear of an attempted US 'roll back' of Eastern Europe, which would have broken these economies from the USSR's grasp, leading in turn to the possibility of an unravelling of the ties which bound the other constituent parts of the USSR to its Russian centre (something that did in fact happen eventually with the great economic and political crisis that shook the whole Eastern Bloc in the years 1989 to 1991). In a somewhat similar way, the US ruling class feared the USSR pulling other Western states--in particular West Germany or Japan--into its sphere of influence, enabling it to vastly increase its military-economic potential for challenging US interests everywhere.

As one US spokesman put it at the time of the Korean War:

So the pattern was laid for the next 30 years, of each of the two great powers reaching out to draw as much of the world into its sphere of influence so as to gain a strategic advantage over the other. They fought a bloody war over control of the Korean peninsula, not because of the little wealth it possessed, but because of the strategic implications for the whole of the East Asian and Pacific region. They gave aid and arms to regimes which fell out with their rival--the US to 'Communist' Yugoslavia so as to gain a foothold in the Balkans close to Russia's borders; the USSR to Cuba so as to get a toehold in the Caribbean close to US borders; the USSR armed Somalia to fight an Ethiopia armed by the US, and then, in a quick turn around, the USSR armed Ethiopia and the US Somalia; Egypt was pulled into the Soviet sphere of influence briefly, and China left it to make an ad hoc arrangement with the US.

Even this might not have been enough to explain the sheer level of military expenditure at the height of the Cold War--equivalent to nearly 20 percent of US national output and probably twice that proportion of the substantially lower USSR national output.65 But arms expenditure had one other great advantage for US capitalism. A massive upsurge in spending by the state on armaments during the Second World War to over 40 percent of national output had had the unintended consequences of providing a market for private capital, pulling it out of the developing recession of 1937 to 1939 and permitting a doubling of total output without lowering the rate of profit.66 During the Cold War there were similar gains with a lower level of arms spending (see figure 3). Profit rates remained more or less constant through the 1950s, sustaining investment and preventing the economy experiencing the sort of devastating slumps it had known 20 years before. One of the great absurdities of capitalism--that the destruction of value can alleviate the tendency to periodic crises67--encouraged the great arms race between the two rival imperialisms of the Cold War years.

The Cold War clash of imperialisms came to an end with the collapse of the Soviet Bloc in the late 1980s. But during its course enormous changes had taken place within the structure of world capitalism as a whole.

The end of the European empires

The Second World War fits neatly with the theory of imperialism as expounded in 1916, especially by Bukharin, but not with the emphasis taken over by Lenin from Hobson on financial capital and investments overseas. So do the 40 or so years of the Cold War, although in a way not recognised by many on the left at the time (and some still today).

Britain, France, Holland and Belgium reacted to the defeat of Germany and Japan by re-establishing their hold over their old colonial possessions in the Far East, North Africa and the Middle East--even if France often relied upon British or US troops to retake colonies for it. There were also attempts to maintain independent imperialist policies, with Britain developing its own nuclear weapons since key sections of its political establishment did not trust the US to defend its interests at all times. Britain maintained its own military presence 'east of Suez', at considerable cost to itself, until the late 1960s. Britain and France together embarked on one last military adventure in defiance of the US with the Suez war of 1956.

But the trend in the post-war decades was away from the colonial policies and conflicts between Western capitalist powers, as theorised by Lenin and Bukharin, which had characterised the previous 70 years. Britain finally abandoned attempts to hang on to the jewel in the colonial crown, the Indian subcontinent, in 1947 after a major mutiny by its Indian sailors, and began in the same year a long retreat from the eastern Mediterranean. Malaysia and the African colonies were to follow in the next two decades. Dutch imperialism tried to hang on to the East Indies, but had conceded defeat by 1950. French resistance to abandonment of empire was stronger--an unsuccessful nine-year war to hold on to Indochina was followed by an equally unsuccessful nine-year attempt to keep Algeria, but by the 1960s it too gave up all of its formal empire apart from a couple of islands in the Caribbean and Pacific.

The US replaced Western European influence in some regions. It took control of South Vietnam when the French withdrew in 1954--until it too was forced to withdraw after the most bitter of wars in the mid-1970s. It became the dominant influence in most of the Middle East and parts of Africa. But, like the European powers, it retreated from formal colonisation, granting independence to the Philippines and keeping direct control only over Puerto Rico.

This retreat from direct colonisation had as a direct corollary the end of the old clashes between the Western powers over the partitioning of the rest of the world. The drive to war between them seemed to have gone once and for all. It was also accompanied by something else unexpected by the Lenin and Bukharin theories of imperialism--once divested of their colonies, each of the Western economies participated in a boom that eventually lasted more than a quarter of a century, saw minimal unemployment, and maintained profit levels without apparent trouble despite regular rises in living standards for their workers. And the advanced countries without any colonies--West Germany, Japan and Italy--had the economies which expanded fastest of all. It almost looked as if Hobson had been right in his claims that colonies were a drain on the economy which would otherwise be able to provide massive reforms at home.

In fact, the driving force behind the boom was precisely the Cold War imperialist rivalry between the US and the USSR, with its massive arms expenditure. Far from there being a 'surplus' of capital in the advanced countries, there was a shortage, and the exports of capital stayed down at the very low levels they had sunk to in the great slump of the 1930s.

As Mike Kidron pointed out in 1962:

And foreign investment was decreasingly directed towards the less industrialised parts of the world: 'The concentration of activity is increasingly within the developed world, leaving all but a few developing countries outside the reach of the new dynamism'.69

The figures for the Latin America show the decline in the importance of foreign investment in the post-war period:

PERCENTAGE SHARE OF FOREIGN DIRECT INVESTMENT
IN DOMESTIC CAPITAL STOCK
 
Argentina 1913: 34 1940: 16 1950: 3  
Mexico 1910: 49 1940: 32 1950: 26 1970: 9

The last figures can be compared with those of Canada, where the figure was 8 percent in 1950 and 12 percent in 1970.70

A shift in the demand for Third World products took place at the same time as the changing in the pattern of investment. At the beginning of the First World War raw materials from agricultural countries were indispensable for industrial production in the West, and colonial control was an important way for industrialised countries to ensure their own supplies and block access to their rivals. But the interruptions to trade during the two world wars forced them to try to find substitutes for such raw materials. So the first half of the 20th century saw the invention of artificial fertilisers, synthetic rubber, rayon, nylon and a vast range of plastics. And during and after the Second World War there was a massive transformation of agriculture in both Europe and North America, with the use of industrial outputs and subsidies to raise food output, so reducing reliance on imports from the rest of the world. In a world now awash with raw material and foodstuffs, withdrawal from colonies in Africa and Asia was no longer the threat it would once have been to the industrialists of the European countries, and companies which had made their fortunes from such things now began to diversify their investments into new lines of business. By the early 1960s the bigger firms in Britain were consciously shifting their focus from the lands of the old empire to the new markets in Europe and North America.

There was, however, one great exception to this picture--oil. Here was the raw material of raw materials, the ingredient for manufacturing the plastics, the synthetic rubber and the artificial fibres, as well as providing for massively expanding energy needs and propelling the ever greater proliferation of motor vehicles, tanks and aircraft. And the supplies of it were increasingly to be found outside Europe and North America. In the early 1950s 'gulf oil' referred to reserves to be found around the Gulf of Mexico, especially in Texas. It was cost of pumping out that oil that determined world prices. By the mid-1970s, as was shown by the temporary interruption of supplies during the Arab-Israeli war of 1973, the gulf that mattered was the Persian Gulf. Saudi Arabia, Iraq, Iran, Kuwait, the petty sheikhdoms around the Arabian peninsula, were the countries that mattered. Control over their policies became increasingly important for the advanced capitalist states. Bribes, threats, weapons sales, the deployment of military 'advisers' and seconded troops were used to achieve this--and so was support for the world's last classic colony, the Israeli settler state with its expulsion of most of the indigenous population and denial of rights to the rest. It was in this region that the wars that mattered for the world system increasingly took place--in 1947-1948, in 1956, in 1967, in 1973, in 1980-1989, in 1982, in 1991, in 2003.

The Third World after colonialism--coming to terms with harsh realities

The dismantling of the European colonial empires was a political fact of immense importance for something like half the world's people who had lived under the thumb of such empires. It raised very important questions for those who had, in one way or another, fought against the hold of those empires. What happened to imperialism--and the fight against it--if empires no longer existed?

The reaction of many social democrats and liberals in the West was to say that imperialism no longer existed. This was, for instance, the conclusion drawn by the most widely known populariser of Marxism in Britain in the 1930s, John Strachey. In his End of Empire (1959) he argued that a combination of trade union pressure and government intervention had raised living standards, so that businesses no longer needed colonies to absorb the surplus and prevent overproduction. In effect, he was saying that Hobson's alternative to imperialism, a reflation of the domestic economy, had prevailed and solved the system's problems.

An important section of the left rejected such reasoning. They could see that the former colonial countries were still plagued by poverty and hunger--and that the Western firms that had benefited from empire remained entrenched in them. What is more, the end of the European empires was not the end to the violence inflicted on the peoples of what was now called the 'Third World' or the 'South'. In many places the US state was picking up the baton of violent oppression from the departing Europeans. The French had hardly left Algeria before US troops were inflicting terror on Vietnam, and the US withdrawal from Vietnam was hardly over before it was backing attempts by apartheid South Africa to send troops to tear apart Angola, recently liberated from Portuguese rule.

Rejecting facile talk about an end to imperialism usually meant insisting on the continued relevance of Lenin's 1916 analysis without recognising the changes that had occurred since it was written. Yet there was a real problem. The very strength of Lenin's approach rested on its insistence that the great Western powers were driven to divide and redivide the world between them, leading to war on the one hand and direct colonial rule on the other. This hardly fitted a situation in which the possibility of war between Western states seemed increasingly remote and colonies had gained independence. Instead most of the left quietly redefined imperialism so as to refer simply to the exploitation of the Third World by Western capitalist classes, ignoring the drive towards war between imperialist powers so central to Lenin's theory, and in practice seeing the whole system as a version of the ultra-imperialism forecast by Kautsky. At the same time they simply replaced talk of colonialism with talk of 'neo-colonies' or 'semi-colonies'.

Lenin had written of 'semi-colonies'. For him these were places like China at the time of the First World War, where colonial armies occupied enclaves of territory and used force to impose their will on the national government. They were countries where independence was a sham, concealing continued subordination to political control by forces in partial occupation of the country. There were some places where things did seem like this after the end of direct colonial control in the 1950s and 1960s. In many cases the departing colonial administrations were able to ensure that their place was taken by their own creatures. The new rulers were people who had collaborated with colonial rule in return for class privileges or a small share in its spoils, and there was enormous continuity in the personnel of the state, especially when it came to key positions in the armed forces. So, for instance, when France was finally forced to abandon Algeria, it also granted 'independence' to huge areas of West and Central Africa by handing power to people who continued, as in the past, to work with French companies, use the French currency--and invite French troops in periodically to maintain 'order'. It was hardly surprising that in such instances people spoke of 'neo-colonialism'.

But in some of the most important cases independence did mean independence. Governments proceeded not only to take seats in the United Nations and set up embassies all over the world. They also intervened in the economy, nationalising colonial companies, implementing land reforms, embarking on schemes of industrialisation inspired by the preaching of the Latin American dependency theorists or, often, by Stalin's Russia. Such things were undertaken with varying degrees of success or failure in India, Egypt, Syria, Iraq, Algeria, Indonesia, Ghana, Equatorial Guinea, Angola, Taiwan and South Korea, as well as by the more radical regimes of China, Cuba and Vietnam.

Over time even some of the 'docile' ex-colonial regimes began to follow the same path. This was true, for instance, of the Malaysian regime (run by politicians fostered by the British in order to crush the anti-colonial insurgency of the late 1940s and early 1950s), of the Shah's regime in Iran in the 1960s and early 1970s (brought to power in 1954 after a coup fostered by the CIA), and of the Taiwanese regime (established with US support after the victory of the People's Liberation Army on mainland China in the late 1940s). Even Mobutu, brought to power with the help of the CIA in Congo-Zaire in 1965, nationalised the mighty Union Miniere de Haut Katanga mining corporation along with 70 percent of export earnings three years later.

To call regimes like Nasser's Egypt or Nehru's India 'neo-colonial' or 'semi-colonial' was a travesty--as it was with the classic 'developmentalist' regimes of Vargas in Brazil, the PRI in Mexico, Peron and those who ousted him in the 1950s in Argentina, or for that matter the nationalist regime run by Fianna Fail in Ireland from the early 1930s onwards. In each case, attempts were made to establish not only independent political entities, but also independent centres of capital accumulation. These still operated within a world dominated by the much stronger capitalisms of the advanced countries, but they were by no means mere playthings of them.

The success of such attempts varied enormously from place to place. A handful of countries made it into what might be called the 'second division' of advanced capitalism. This was true of South Korea, Taiwan, Singapore and Hong Kong--and by the 1990s of coastal China as it experienced industrial growth rates much higher than anywhere else in the world. In each of these cases the imposition of dictatorial regimes and the use of harsh repression to hold down the living standards of the mass of the population resulted in 30 percent or more of output being used for accumulation and successful industrialisation. But similar methods in many other places had very different outcomes. In the major Latin American countries nearly half a century of successful if slow accumulation was followed, in the 1980s, by a 'lost decade' of stagnation, debt crises and increased impoverishment of wide sections of the population. Argentina, an industrialised country whose workers once had living standards as high as those in France, began to stagnate from the early 1970s onwards. Sub-Saharan Africa underwent more than 30 years of falling output per head.

Even where 'development' did take place, it was usually accompanied by a combination of dictatorship and appalling conditions for the mass of people. This is why the feeling that nothing had changed with decolonisation was so widespread among sections of the middle class, workers and peasants. Inevitably there was growing disillusionment among the lower middle class and the workers--and sometimes sections of the peasantry--with the nationalist 'developmentalist' state. It became increasingly clear that it could not fulfil the promises it had made to improve the living standards of the mass of the population and improve the life chances of the middle class. This could easily translate into the feeling that it had betrayed the goal it had proclaimed of 'national liberation'. Opposition movements took up its old slogans and directed them against it--even when, as in Argentina in the 1950s or India in the 1960s, the direct links between the state and foreign capital were still minimal. The nationalist ideology of the bourgeoisie and petty bourgeoisie seeking capitalist development became the left nationalist ideology of those who had suffered from the attempts at such development.

One expression of this was the popularity, particularly after the Cuban Revolution of 1959, of new, radical versions of dependency theory which fused the Stalinist and Latin American traditions and hegemonised much of the left worldwide in the 1960s. The writings of Paul Baran (especially The Political Economy of Growth) and André Gunder Frank ('The Development of Underdevelopment') dominated most Marxist thinking on the subject (even though Gunder Frank did not see himself as Marxist).71

Baran wrote, 'Far from serving as an engine of economic expansion, of technological progress and social change, the capitalist order in these countries has represented a framework for economic stagnation, for archaic technology and for social backwardness',72 and, 'The establishment of a socialist planned economy is the essential, indeed indispensable, condition for the attainment of economic and social progress in underdeveloped countries'.73

Gunder Frank was just as adamant:

'Socialism' for Baran and 'breaking with capitalism' for Gunder Frank meant following the model of Stalinist Russia.75

The 'dependentist' argument, in either form, was a weak one. It rested on four unsustainable assumptions.

It assumed that capitalists from the advanced countries who invested in the Third World deliberately chose not to build up industry, even when it would have been profitable to do so, for fear of competing with industrial capital in their home states. So much of Gunder Frank's argument is of the circular form: industrial development did not take place because foreign merchant capital predominated, and this shows industrial development was stopped by foreign capital. This assumption, of course, was completely opposed to Lenin's belief, based on the experience of pre-revolutionary Russia, that foreign capital could go into the building of industry. It also failed to account for the considerable industrial development that had taken place in Argentina and the British dominions before the First World War and in Mexico, Argentina and Brazil from the 1930s onwards.

Its second false assumption was that the Western states at all time have an interest in using their power to prevent any such industrialisation. In practice, they have done so at some points, but not at others. So Britain followed policies which prevented industrialisation of some parts of its empire, but at other points was quite happy to see industrialisation take place (for instance, with the growth of enormous shipbuilding and engineering industries in north east Ireland, or of jute mills in Bengal).

Thirdly, it assumed that the Western powers were able so to manipulate the Latin American governments as to prevent them following independent policies. Yet the reality was much more complex. Any powerful state has a variety of instruments for bending a less powerful state to its will. But it can rarely achieve more than part of what it wants. So, for instance, Britain did try to influence the outcome of the civil wars that plagued Argentina between the final achievement of independence in the 1820s and the early 1860s. But it was never fully successful, and was usually reduced to trying to make sure the outcome was the least worst from its point of view. The civil wars themselves, and the balance of forces determining their outcome, were a result of internal divisions within the Argentinian exploiting classes (rivalries between the great landowners of the interior and the merchants of Buenos Aires), with each looking for foreign allies to back its claims. This was a very different situation to that which prevailed in Europe's direct colonies or in its semi-colonial enclaves in China--although it had some similarities with Britain's self governing 'white dominions'.76

Finally, the theory insisted that because the ruling class of one country was 'dependent' upon its trade and investment patterns with bigger capitalist countries, it inevitably lost any ability to forge an independent path of capital accumulation and economic development. But this would rule out any such independence for most of the world's capitalist countries. For a good half century the European economies, for instance, have been to a high degree dependent on what happens in the US economy (hence the old saying, 'When the US gets a cold, Europe gets pneumonia'). The Dutch economy is to a very high degree dependent on what happens in Britain and Germany. But this has not turned the European ruling classes simply into puppets of the US, or the Dutch ruling class into a plaything of British and German interests.

Dependency theory appealed to people because it recognised the reality that much of the world was not automatically pulled out of poverty simply by embracing capitalism. But its remedy, cutting the poorer parts of the world off from the great concentrations of wealth (including that pillaged by imperialism in the past) in the advanced countries, was not an adequate one. These concentrations of wealth meant that the capitalists of the advanced countries could nearly always outcompete their new rivals--and outgun them if necessary. The USSR may have been able to industrialise (at enormous cost to its people) after 1928. Brazil and Argentina, and later Egypt and India, may have been able to build up some basic industries. But by the late 1960s there were limits as to how much further they could proceed using the model of self contained industrialising. Yet this was the model which dependency theory, whether in its old or its new form, propagandised.

Dependency theory reached its high point of popularity in the late 1960s and early 1970s as the last wave of anti-colonial struggles drove the US out of Vietnam, liberated Angola, Mozambique and Guinea-Bissau from the Portuguese, and ended white rule in Zimbabwe. Yet it was precisely at this time that it showed its inadequacy as, one after another, the old liberated states reached an economic impasse. If there were any doubts, the case of Cambodia proved it. To the praise of some dependency theorists, the Pol Pot regime that came to power in the mid-1970s cut off its economic links with the outside world and tried to follow a policy of completely 'independent' development--and the result was a death toll possibly even worse than that caused by US bombing in defence of the country's previous regime.

Mike Kidron had warned in 1971 that 'independent' development was no longer a viable option in Third World countries. He wrote of, 'the end of a terrible illusion, held as fervently by many seeming revolutionaries as by members of the more orthodox schools: that economic development in backward countries is possible without revolution in the developed'.77 He was not wholly right. The 'illusion' persisted for a good while longer, and a handful of states that had travelled along the path of 'independent development' at enormous cost to their workers and peasants were able to adopt a new strategy of accumulation based upon opening up their economies to foreign capital and trade. But most were damned whichever path they now took.

Part 3: Imperialism and 'globalisation'

Imperialism had changed from Hobson's time to that of the Second World War. It had changed again in the post-war years. In the late 1960s and 1970s a third change took place.

For 20 years the Western powers were united behind US leadership in their opposition to a Soviet Bloc which was joined by China after the victory of the Communist forces there in 1949. There were occasional tensions between them. Britain and France, as we have seen, tried to wage war on Egypt without US backing, and failed. Sections of the British and French establishment were, at first, fearful of a revived German capitalism, but eventually swallowed their doubts with German rearmament in 1954 and the establishment of a limited economic union between the most important Western European continental states, the Coal and Steel Community (later to become the European Common Market and eventually the European Union). Between 1953 and 1956 there was also fear that Stalin's successors would offer to unite their part of Germany, the German Democratic Republic, with West Germany, in return for the united Germany leaving the Western bloc. Lord Ismay, first secretary general of NATO, described its role for the European powers as being 'to keep the Russians out, the Americans in and the Germans down'.

But these tensions seemed marginal in the face of a series of Cold War conflicts--open war in Korea, eyeball to eyeball confrontations over two very small islands off the China coast, Quemoy and Matsu, the Berlin crisis of 1961 and, finally, the Cuban missile crisis of 1962, which was probably the closest the world came to nuclear war.

Things changed slowly after the Cuba crisis. China began to follow a course increasingly divergent to that of Russia and then in open opposition to it, with near war between the two in 1969 and the visit of US President Nixon to Beijing in 1971--at the height of his war against Russia's ally Vietnam. There were divergences, although never as wide or as open, in the Western camp as well. The European powers did not see any gain for themselves in providing military backing for the US war in Vietnam or even diplomatic cover for its hostility to Cuba. And once he had managed to bring the Algerian war to an end, France's President De Gaulle was openly critical of the way the US used the predominance of the dollar in world trade to buy up overseas investments on the cheap. This led some people to speculate about a new round of inter-imperialist conflict, 'Europe versus America'.78 But the disagreements never seemed to get out of hand. The US did not put much pressure on its allies to do more over Vietnam or Cuba, and, despite De Gaulle, the other European powers tolerated the expansion of its dollar-based funds in Europe. Hostility to the rival imperialism in the East kept the Western imperialisms co-operating with each other when it came to major issues.

The more important shifts were those taking place beneath the surface.

The economic balance between the various Western states underwent a long term change, as Germany and Japan grew rapidly (see figure 2). In 1945 the US had accounted for something over 50 percent of world output; by the 1980s the figure was down to about 25 percent. In 1953 the US accounted for 59 percent of the advanced countries' combined GNP, and by 1977 only 48 percent; in the same period Japan's share rose from 3.6 percent to 13.2 percent, and of West Germany from 6.5 percent to 13.2 percent.79 In the early 1960s Japan's manufacturing exports were less than a third of the US's; by the late 1970s they were at the same level. And, after a small downturn with the world economic recession of 1974-75, they continued to grow more rapidly than the US's for another decade. The US--and to a lesser extent Britain--were paying the price of sustaining the whole world economy through arms spending. Essentially the US's arms industry kept its economy booming, and so provided a market for German and Japanese exports. Meanwhile, without massive arms bills themselves, Germany and Japan were able invest more in industry and begin to catch up with the US in terms of productivity and competitiveness.

Along with this went a second great shift within the system as a whole. From the late 1960s onwards there were growing financial flows across national boundaries. Foreign currency commitments of West European banks increased eightfold between 1968 and 1974. The flows sped up massively after the quadrupling of world oil prices in 1973-1974. Oil producing states were suddenly in receipt of enormous funds which their rulers mostly deposited in US banks, which then in turn lent them to certain newly industrialising countries (especially Brazil) and Eastern Bloc countries (Poland and Hungary). These were still booming and seemed to offer a safe return on the loans. The booms did not outlast the next world economic recession in 1980-1982, and difficulties in paying interest on the loans brought the countries to the verge of bankruptcy. But the circuits of finance continued their expansion. By September 1985 total lending to the world banking system totalled $2,347 billion,80 and the Eurobond market increased 70 percent in size in that year alone.

Parallel with the growth in international banking went an explosive expansion of international currency deals which made attempts by governments to control national banking systems seem increasingly futile. As the Financial Times noted in the mid-1980s, 'Deregulation and technological advance' was pulling 'the world banking market into a single great pool of capital',81 and leading to 'visionary phrases' from 'top international bankers' such as 'globalisation of securities markets' and 'serving the customer in a single world marketplace'.82

The growth of finance was accompanied by a resurrection of the feature Hobson, Hilferding and Lenin had paid so much attention to--the export of capital. The stock of foreign direct investment (FDI) had amounted to only 4 percent of world gross domestic product in 1950 (as against 9 percent in 1913). In 1999 it reached 15.9 percent.83 Total world FDI outflows amounted to $37 billion by 1982. By 1990 they had shot up to $235 billion and in 2000 to $1,150 billion. By the last date they were equivalent to around one sixth of total world fixed capital formation.84 But there was one major departure from the Hobson-Lenin picture. The flows were not from industrial to 'underdeveloped' countries. They were overwhelmingly to areas where industry already existed.

'The key point to notice is that stock of both inward and outward FDI are concentrated in the developed economies; the overwhelming share of FDI flows is between developed countries'.85

There was a rise from 25 to 30 percent in the share of FDI going to 'developing' countries between 1980 and 1990, but 'within the developing countries themselves these stocks are highly concentrated among a handful of countries... If China is excluded the share of inward stock held by the developing world has been more or less stagnant over the last 20 years... Ten developing countries received 80 percent of the total FDI flows to the developing countries'.86 Europe alone accounted for around half of US direct investment overseas in the mid 1990s, 50 times more than Indonesia and nearly 400 times as much as India, even though India's population is around four times larger than Europe's.87

Such flows of investment are an indication of where capitalists think profits are to be made, and they suggest that it is overwhelmingly within the advanced countries, and a handful of 'newly industrialising' countries and regions (of which coastal China is now the most important). This means that, whatever may have been the case a century ago, it makes no sense to see the advanced countries as 'parasitic', living off the former colonial world. Nor does it make sense to see workers in the West gaining from 'super-exploitation' in the Third World. Those who run the system do not miss any opportunity to exploit workers anywhere, however poor they are. But the centres of exploitation, as indicated by the FDI figures, are where industry already exists.

The rise in the figures for FDI reflects very much the rise of the multinational corporations. Multinational firms (eg ITT, Ford, Coca-Cola) had existed in the pre-war period. But they were not generally based upon integrated international research and production. The British subsidiary of a US car firm would in general develop and market its own models independently of what happened in Detroit. It was this that began to change in the 1960s and 1970s. The successful firms began to be those who operated international development, production and marketing strategies. Already by the late 1950s IBM (bolstered by huge contracts for the US military) was able to dominate the new mainframe computer industry worldwide. Boeing (again bolstered by US military contracts) began to drive rival 'national' civil aviation firms into the ground, forcing European firms to pool their resources in the Airbus consortium. Petrochemical production ceased to be confined within individual European countries and came to involve elaborate pipelines carrying materials from plant in one country to plant in others. A new stage of capitalist production, based upon multinational enterprises, had arrived.

Once the process of internationalisation of production was under way, there was no stopping it. By the late 1980s there was hardly an industry in which firms in one country did not have to work out international strategies, based upon buying up, merging with or establishing strategic alliances with firms in other countries. Not all these mergers and alliances survived the ups and downs of the world economy over the next two decades. Some de-merged or divorced, only then to link up with other rivals. But the overall pattern was set. Firms which wanted to survive growing international competition had to embark on buying up affiliates abroad. By 2001 European companies were spending $126 billion buying companies in the US, and US firms $42 billion buying companies in Europe.88 Some 80 percent of FDI in 1999 was on buying up foreign firms, as opposed to starting up new production facilities (so much for the neo-liberal myth that foreign investment always means increased output and jobs).89

The state, capital and 'globalisation'

The internationalisation of finance, markets and production led, in the mid-1990s, to many people making a simple judgement. The state was disappearing as an economic actor. A new multinational world capitalist class was emerging which had no need for this relic of half a century ago. The judgement was wrong. It failed to recognise the continued interconnectedness of the biggest multinationals and the most powerful states.

A big portion of the sales and the bulk of the investments of the major multinationals remain concentrated in their home country (or, for small countries, in that and adjacent countries). A detailed survey showed this ten years ago.

PERCENTAGE OF BUSINESS FOR MULTINATIONALS
IN HOME COUNTRY 90
 
  Manufacturing sales Service sales Manufacturing assets Service assets
US 64 75 70 74
Japan 75 77 97 92
Germany 48 65 n/a n/a
France 45 69 55 50
UK 36 61 39 61

The extreme concentration of assets in the home country for Japan and the US was apparent. Of the Fortune 100 largest firms, 40 did half or more of their sales in foreign markets, but only 18 maintained the majority of their assets abroad, and only 19 at least half their workforce.91 The picture was slightly less clear cut in the case of the European multinationals, because many have begun investing in neighbouring European countries, but if the European Union was treated as a 'home region', degrees of concentration comparable to those in the US and Japan were found. British multinationals were an exception, in that over 20 percent of their assets were in the US, a similar figure to that for continental Europe. Both figures were, however, much higher than for assets located in the whole of the rest of the world combined (including the much-hyped Asian 'Tigers'). The internationalisation of the system has proceeded apace over the last decade. But the changes have been quantitative, not qualitative. So in 1998 inward foreign investment was only equivalent to 10.9 percent of private domestic capital formation in the developed countries--leaving local investors responsible for nearly 90 percent. A survey of 498 top Japanese firms shows that just over a quarter of their profits come from overseas--which means they still depend for nearly three quarters on the domestic market.92

At the same time, most major multinational firms remain firmly controlled by capitalists from a particular country. Again, the most thorough figures come from ten or a dozen years ago. Of 30 US 'core' firms, only five had a foreigner on their executive board in 1991, and only 2 percent of board members of big American companies were foreigners. Only two of 20 big Japanese companies and four of 15 'core' German firms had a foreigner on their board.93 Recent studies suggest that most top multinational corporations will now have a couple of non-nationals on their boards. But these remain a small minority. So only ten of the top 35 Swedish companies had any foreign directors in 1999, and these only accounted for about 10 percent of all directors, while nearly three quarters of the top Dutch companies had no foreign directors, even though 60 percent of the sales of the top companies were outside Holland. Researchers concluded, 'The national diversity of top management teams has not progressed at the same rate as the internationalisation of the companies at large'.94 Firms with a global reach like ExxonMobil and Microsoft can operate with no non-US directors.95 Renault-Nissan refers to itself as a 'binational group' (French-Japanese), rather than multinational,96 and the US business media have been screaming that the merger of Daimler-Benz and Chrysler, instead of living up to promises of a global corporation, has in fact resulted in a German-run one.

Regardless of the nationality of its directors, what the national state does can still have an enormous impact on the profitability of a company operating from its territory. It controls taxation and government expenditure, both of which influence both the general level of economic activity and the possibilities open to particular firms. Through its influence on the national bank, it influences the liquidity available to firms and the rates of interest they have to pay on any borrowing. It is responsible for company laws and labour laws which affect the balance between different companies, and between them all and their workers. It negotiates trade agreements which can open up markets in other countries. It ensures that other states make sure firms get paid for 'intellectual copyright' on new inventions and discoveries--increasingly important when it comes to pharmaceuticals, agroindustry and software--at a time when 'piracy' costs firms an estimated total of $200 billion a year,97 and continually threatens to eat into home markets. It has the capacity to intervene to protect firms against going bust if their profitability calculations go wildly wrong. And last, but by no means least, it exercises a monopoly of armed force which can be used against other states.

These functions do not disappear or become less important with the internationalisation of the system. The last 30 years have seen three major international crises and the beginning of a fourth. The actions of states have been very important in determining the survival of certain major firms and the profitability of many others.

Decisions had to be made on whether to influence currency levels, whether to raise or lower short term interest rates, whether to enter into the trade agreements under the auspices of the General Agreement on Tariffs and Trade and then the World Trade Organisation (WTO), how to allocate government contracts, the level of military expenditure. And on top of these there was the question of what should be done with the direct state intervention into the economy though nationalised industries, currency controls, tariffs and so on inherited from the previous period. Even the neo-liberal decision to scrap all these things was still a decision to be made. Multinationals with over 35 percent of their investments (the minimum in our list above) in one 'home' country could not afford to neglect trying to have an impact on any of these choices.

So it was that negotiations between states played a key role in the interrelations between the firms based within them at certain points in the 1980s and 1990s: the 'Plaza Accord' agreement between the US and Japanese governments to shift the value of the yen compared to the dollar so as to make life easier and more profitable for US firms in the mid-1980s;98 the decision of the European governments to form the European Exchange Rate Mechanism (ERM) and then the euro--and of the British government to escape from the devastating impact of the ERM on the exports of British firms in 1992; the haggling between the European Union and the United States over barriers to trade in agricultural products and over 'intellectual copyright' (essential to raising the profitability of software and pharmaceutical companies); the discussions within the framework of the International Monetary Fund (IMF) over the treatment of indebted countries; agreements over landing rights at international airports; and the sorts of weapons supposedly integrated military pacts were going to use.

How important state decisions could be for very big firms can be seen by looking at the Fortune 100 list of the world's biggest firms: 'All formerly or currently leading US computers, semiconductors and electronic makers in 1993 Fortune 100 benefited enormously from preferential defence contracts', another 23 were 'directly engaged in the oil industry' and so very dependent upon the ability of their 'home' government to protect their concessions, while at least 20 companies would not have survived at all as independent companies if they had not been saved by their respective governments in the previous decade and a half.99 On top of this, all the key telecoms firms depended for major contracts and operating licences on governments, and bargaining between governments and international consortia.

The world biggest companies have both expanded beyond national boundaries on a scale that now exceeds the internationalisation of the system before the First World War and remain dependent to a high degree on their ability to influence 'their' national government. This is because, at the end of the day, they need a state to protect their web of international interests, and the only states that exist are national states.

As Dick Ryan has recently noted with respect to the most internationalised aspect of the system:

It does not matter how much governments may avow their ideological commitment to 'neo-liberalism' and leaving the economy to the market. They can no more avoid making decisions on things that can have such a dramatic effect on the market than they can jump over their own shadow. And the great multinationals cannot avoid influencing and being influenced by this decision making.

This never consists of the politicians simply responding in a mechanical manner to an agreed policy laid down by capital. For capital is made up of rival firms, each jostling for its own positions--and often of rival bosses within those firms each trying to get one up on the others. There are limits which capitalist governments cannot step outside of without doing immense damage to the economy and to themselves. But within this framework coalitions of capitalist politicians and business interests push divergent policies, each trying to show it can shape out the best policy for the ruling class as a whole. Such coalitions typically combine those motivated by short term profit, those with the big money to dominate the media, the simply corrupt, and those with an ideological vision that gives a section of the capitalist class a sense of historic purpose. The various factions that battle for control of the Republican and Democratic parties in the US are such coalitions. So too are the rival pro-euro and anti-euro groups within the Tory and New Labour wings of the British political establishment. What they are battling over is the use of state power for capitalist ends. It is this which creates the potential for imperialism in the sense of the use of coercion as a form of inter-capitalist competition on an international scale.

The United States: hegemony, force and the second Cold War

The trend towards 'globalisation' began just as the US was suffering its most important military setback of the 20th century--its failure to subdue Vietnam. The US began the war believing it was facing a simple policing operation which its economic and military might would make easy. 'We have 30 Vietnams,' declared Robert Kennedy, shrugging off warnings about potential problems.101 But as it was forced to double and double again the forces it deployed, it faced not just resistance from those horrified by the war, but also growing opposition to the cost from within the ruling class, with Wall Street beginning to turn against continuation of the war,102 even though it was no higher than that of the Korean War 15 years before. The change in the world balance of economic forces was hitting at the US's ability to maintain its global hegemony. By the time the war eventually ended there were deep splits in the US political establishment that culminated in Nixon's attempts to spy on the Democratic Party, the Watergate affair and the forced abdication of the president. In the meantime, it had been forced to abandon the Bretton Woods international monetary system which enshrined US financial hegemony, and to begin cutting military spending, which fell in real terms by about 38 percent between the late 1960s and the late 1970s, and as a proportion of GNP by nearly half.103

It had lost its old ability to maintain easy dominance over two thirds of the world, just as the internationalisation of the economic system increased the importance of such dominance to its corporations.

For a time it seemed able to cope with a mixture of diplomacy, force and murderous thuggery, doled out by Kissinger, as adviser to Republican administrations, and Brzezinski for the Democrats. The US was able to turn to China as a counterweight to Russia, to use its arms to prevent an Arab victory in the 1973 war with Israel, to pull Egypt fully into the US camp, to help the local ruling class mercilessly crush the left in Chile in 1973 and Argentina in 1976, and to work with European social democracy to contain the Portuguese Revolution of 1974. But then came a triple shock to US hegemony. The revolutionary overthrow of the Iranian monarchy in 1979 suddenly destroyed one bastion of US strategy in the Middle East (the other was, and remains, the Israeli settler state) as Islamic militants seized the US embassy and held its officials hostage. Sandinista insurgents drove out the pro-US dictator of Nicaragua, established an anti-imperialist regime and inspired guerrilla movements in neighbouring El Salvador and Guatemala. And Russian troops moved into Afghanistan to keep a pro-Russian government in power in face of rising popular resistance.

These shocks preceded another, on the economic front--the second international recession in five years and, with it, increasing success by Japanese companies challenging US capitalism on its home ground. Japanese car firms began to take sales from the US giants Ford and General Motors, while the third US car giant, Chrysler, was only saved from bankruptcy by a government bail-out (and the selling off of its European subsidiaries).

Such events emphasised the degree to which the US hegemony had not been able to recover from the defeat in Vietnam, and pushed its leaders to embrace a new strategy--at first tentatively under Carter and then with relish under Reagan. It represented a return to the 'Cold War imperialism' strategy of confrontation with the USSR--and of using this to try to force the other Western powers to accept the US agenda on other strategic, political and economic fronts.

There were a number of elements to the strategy:

(i) A reversal of the decade-long decline in arms spending, until it was back in real terms (although not as share of GDP) to what it was at the height of the Vietnam War, and the deployment of a new range of weaponry--the cruise and Pershing missile systems. The objective was to face the rulers of the USSR with a choice--accept US strategic superiority in every sphere (including the capacity to stage nuclear 'first strikes' and 'theatre wars'), or increase spending on arms to such a level as to break its own economy. This was the 'Bukharin' model of imperialist competition with a vengeance.

(ii) Providing a very high level of arms, logistic support and aid in recruiting forces (organised via the Saudi government, Pakistan's military intelligence and the Saudi millionaire Osama Bin Laden) for the Afghan resistance, enabling