Global finance and the 'New Cold War'

The defeat of the US-sponsored Georgian invasion of South Ossetia at the hands of the Russian Army signals the end of the post-Cold War era; an era in which national sovereignty and international law were violated with greater frequency then at any time since World War Two.

Since the defeat of communism, de-regulated corporate capitalism and the financial markets have triumphed over organised labour and lorded over most governments. But above all it has been the era of United States imperial supremacy. In Iraq and Afghanistan, one could no longer distinguish between the US army of occupation and the mercenary armies of the 'security industry'; allied to the more traditional transnational capitalist enterprises in Oil & Gas, Finance, and 'Reconstruction'. Under overall US command, the Western world has morphed into a rolling privatisation, corporate plunder and military intervention machine.

However, since the opening of the 21st Century, the US Empire has had to face two worrying challenges. Firstly, the gradual re-emergence of multi-polarity in global state power relationships, mainly in the shape of rising China and resurgent Russia; secondly, the eruption of class war and social revolution in Latin America.

The War on Terror was the American way of dealing with the multi-polarity challenge. The neo-conservative ideologues thought that the 9/11 atrocity presented the US with a wonderful opportunity to rally the rulers and the people of Europe and the 'Anglo-Saxon' world behind America’s leadership, to help the USA maintain its control over the rival capitalist factions within the European Union, to reassert the discipline under US leadership of the rich capitalist countries- a discipline which had been maintained during the years of the Cold War by the threat of communism.

The neo-cons hoped that this new Islamaphobic solidarity would serve to deter rival Eurasian capitalist powers from challenging US hegemony. But the USA's war of plunder and mass killing in Iraq did not work according to plan. The occupation of Afghanistan did not finish off the Taliban nor did it spread Western hegemony to former Soviet Central Asia. Emerging regional powers including India, Brazil and South Africa began to challenge US global trading policy, and China continued to grow in industrial, financial and military power.

Among the root causes of the new Russian-American conflict is a serious mistake which was made by the Western governments, the IMF and the World Bank in the early 1990s. The Western powers, which backed Boris Yeltsin in his 1993 military coup against Russia’s elected parliament, failed to insist that the great privatization of Russia’s economy should be done in a way that would open up the country's industries to foreign capitalist ownership, as a pre-condition for extending loans.

Moscow, 3rd October 1993: under orders from Boris Yeltsin, tanks shell the Russian Parliament.

This blunder occurred because, during that period, the Western governments were fearful that the Russian communists might return to power. So they let Yeltsin give away Russia’s riches to his handpicked friends, as a means of securing the loyalty of the new post-Soviet corporate elite to the US-friendly regime in the Kremlin.

This corrupt manoeuvre violated free-market dogma in one important respect. From Chile in 1973 to Poland in 1989, neo-liberal market reforms involved removing government protection for domestic industry and agriculture, so it could be made into easy pickings for the benefit of EU and US capitalist takeovers. But in Russia, Western governments and financial institutions had enthusiastically supported Boris Yeltsin’s handover of Russia’s riches to local criminal gangs and family friends, who went on to become Russia’s oligarchs.

Many of Yeltsin’s close friends were former Soviet factory bosses and former members of the Communist Party elite. The new Russian oligarchs did not owe allegiance to Western finance capital, the European Union or the USA. Their political allegiance was owed to the Russian State and the Kremlin, which had installed them as the owners and chiefs of newly privatized industries. So when President Putin assumed office, all he had to do was to make an example of a couple of troublesome oligarchs, for the rest of Russia’s new capitalist class to fall into line behind his government.

Putin took back a few energy companies into state ownership and left the majority of private firms under no illusion that they could allow Western firms to acquire controlling stakes in strategically vital Russian enterprises. From then on, the bulk of Russia’s energy wealth had to flow not only into private offshore bank accounts and Western investment banks, but back into the domestic economy. At that moment, Russian corporatist capitalism was born and American-led globalisation was dead in its tracks.

The US response to Putin’s brake on Western financial expansionism was an intensification of the drive to weaken and isolate Russia in Eurasia. NATO speeded up the incorporation of the former Warsaw Pact countries and former Soviet Republics into the Western alliance. American military bases were constructed near the Russian border. Ronald Reagan's Star Wars project of 'Missile Defense' was resurrected, in order to make a future American nuclear strike against Russia a more viable option.

Above all, American diplomacy worked very hard to turn all Russia’s former allies and neighbours into belligerent enemies; encouraging them to take a hard line not only against the Russian government but also against their local Russian ethnic minorities in the many economic, political and ethnic disputes which arose out of the dismemberment of the USSR. Both the USA and the EU participated in the political destabilisation of East European states and the former Soviet republics that remained friendly to Russia. 'Colour revolutions' - Western-funded attempts to overthrow governments which maintained friendly relationships with Russia - succeeded in Georgia and Ukraine, had mixed results in Kyrgyzstan, and failed in Belarus.

Yet on the back of the huge industrial expansion of China, which fuelled a boom in the world prices of commodities and in particular oil and gas, Russia’s corporate elite grew in wealth and confidence. Spectacular economic growth, averaging between six and seven percent every year, helped Putin weaken the two main oppositions, the communist party and the pro-Western 'liberals'. His successful military action against the separatists in Chechnya, who were backed by both Al-Qaida and Western forces, finally put an end to all attempts to dismember the Russian Federation.

Western financial supremacy in decline

By the winter of 2007, the word was out amongst the investment banking community that the Credit Crunch was developing into a full blown crisis amogst the Western financial institutions. Western finance capital has followed the US government into the red. Their financial liquidity has dried up due to the failed speculative financial products that were supposed to vacuum the riches of the world into the coffers of the financial hubs of London and New York. But by now the vultures of private equity and banking could only identify one source of capital left to save them: sovereign funds.

The phrase 'sovereign wealth funds' is an oxymoron in the context of US led globalisation. In theory, capital was supposed to flow freely in the de-regulated world markets through privately owned corporations and financial institutions. To the neo conservative mind, the USA’s multi trillion war machine should be the only sovereign fund in the world, in order to force open any remaining global barriers still standing in the way of Western capitalists.

But by late 2007 even half-witted bourgeois economists could not fail to notice that the nations which had amassed the greatest financial surpluses were largely the countries which have not followed the neo-liberal prescriptions of privatising natural resources and allowing an uncontrolled opening of their domestic economies to foreign capitalist ownership and competition.

The liquidity rich 'Sovereign Funds Club' has a strange variety of member states. It stretches from the Saudi Royals who strictly sought to keep the oil business in the family, to the Venezuelan revolutionaries who wish to utilise public ownership of the energy sector for the construction of a fairer society.

But what is of immediate concern to the US Empire are the sovereign funds that belong to the two previous Cold War enemies of the USA, veto-wielding members of the UN Security Council who also happen to possess an independent nuclear arsenal- namely Russia and China.

Post-Cold War allies: Vladimir Putin and Hu Jintau

We must remember that towards the end of the Cold War the US-led arms race had successfully weakened the Soviet economy, leaving the Western capitalist camp with superior financial resources to the USSR, superior technology, as well as an equal nuclear weapons capacity. But 15 years after the collapse of the USSR, the USA has found itself once again facing potential competitors on the world stage- who are amassing financial reserves that could help build rival spheres of influence in Asia, Africa, Latin America and even one day perhaps in the heart of Europe.

Russian and Chinese state funds have accumulated over a trillion US dollars in financial reserves. Both emerging powers are attempting to use their newly acquired financial resources in order to export capital and buy stakes in vital global corporations.
Only ten years ago, Third World leaders shopping for inward investments and new technology could only turn to Western finance capital and Western governments for help. Western capitalists will only oblige those needs under strict pre-conditions involving wholesale privatisations, abolishing the protective tariffs that used to shield endogenous farmers, and by slashing public spending.

El Alto, Bolivia: workers celebrate the nationalisation of the country's gas resources.

But today, poorer countries have more choice. The Chinese have extended investment to Africa without the usual neo-liberal preconditions. The new socialist governments in South America have concluded financial and industrial joint venture agreements with both China and Russia without being forced to slash public spending on healthcare, education and food subsidies for the population. On the contrary, both the Venezuelan and Bolivian revolutionaries have gone on a well planned nationalisation spree, in step with genuine popular democratisation.

Dangerous options

This is not what the early 21st Century was supposed to look like. Resembling the spells of the sorceror's apprentice, the economic forces unleashed by globalisation are having unpredicted effects, over which the Western governments and their international financial institutions have diminishing control. Nevertheless- for the United States, developments which will further undermine its imperial power are unacceptable and must sooner or later be confronted.

A low-key rehearsal for a future American showdown with China was seen in the period preceding the Olympic games, during which Western politicians and Western-financed political groups sought to exploit China's perceived vulnerablitites, specifically on Tibet and 'human rights'.

But in the current economic climate, an open US confrontation with China would precipitate a catastrophic economic meltdown. So instead, using Georgia as its proxy, the fight was picked with Russia; on an issue through which, it was vainly hoped, a wedge could be driven between Russia and China. Thus we now have a 'New Cold War'.

As the challenges to the world supremacy of the United States become more pressing, the hawks in Washington will explore new and and more dangerous options in their desperation to preserve their global empire.