World Recession and the Iraq War




Contents   Appendix


World Recession and the Iraq War


Imperialist Crisis and War

Growing World Recession

Crisis in the US Economy

Dollar Hegemony & the Rise of the Euro

Geo-politics of War

Military Solution to an Economic Crisis

Shock and Awe’ do not Frighten the People of the World

On April 28 the BBC reported that at last life appears to be coming back to Silicon Valley after the bursting of the bubble a couple of years ago. The reason: $6 billion of orders from the US Defence Department and Homeland Security; with promises of much more. With defence and internal security going hi-tech, Silicon Valley is much in demand.

This is only the tip of the iceberg of what ails the US economy, which drives its politics of war. The rot is far deeper. To get at the truth one has to remove the chaff created by the huge media complex, which is today nothing but a gigantic lie-producing machine, packaged in glossy presentations.

Imperialist wars, geo-political maneuvers and economic interests are an intricate web within the prevailing capitalist/imperialist system. It is inconceivable to look at one aspect without the other. As Lenin once said: war is the continuation of politics by other means; and politics is nothing but the concentrated expression of economics. The internal dynamics of the Iraq war can only be fully understood by seeing them in these inter-connections. Besides, it is only with such a scientific understanding of the overall situation that a comprehensive tactic can be evolved to counter the war-mongering of US imperialism internationally and its repercussions on our country locally.

After all, the whole point of seeking to understand the situation is to effectively act on it in order to change it.

The problem with the pacifists is that they see only the superficial manifestations of the war, and are therefore unable to understand its inner dynamics or evolve effective methods to fight it. Notwithstanding their good intentions, they easily fall prey to pessimism — whether from the (temporary) defeat in Iraq, or the vacillations of the other imperialist/reactionary powers, or due to defeatism in the face of the US’s "shock and awe" campaign, which is designed specifically to create a feeling of helplessness before US might.

The problem with the social-democrats/revisionists, though they know the reality, their opposition is half-baked, hesitant, and more particularly geared to make political capital out of the situation in support of one or the other ruling factions. Often they also act as a fifth column within the anti-imperialist movement to sabotage it from within; or to push it along harmless, peaceful, ineffective lines, as is evident with the World Social Forum.

Here, in this article we shall try and understand the internal dynamics of the Iraq war and the international situation from which it has evolved, in order to find the most effective method of opposition. Also, through this analysis we shall try and predict the future line of conduct of the imperialists, particularly the US, its impact on the class alignment of forces worldwide, and the evolving growth in the anti-imperialist movements throughout the world. Finally, we present the challenges before the democratic and revolutionary forces within the country in the light of the present international situation.

Imperialist Crisis and War

The deepening economic recession worldwide since early 2001 is having the following results on world politics:

First, the imperialists, and particularly US imperialism, is seeking to push the burden of the crisis onto the backs of the working people throughout the world, particularly onto the backs of the backward countries of the world — so, the aggressive promotion of the policies of globalisation (economic reform), increased hegemony, arm-twisting and dadagiri, and even wars to conquer backward countries (e.g. Afghanistan and Iraq). This is resulting in the sharpening of the contradiction between imperialism and the oppressed countries and nations of the world. The increasing exploitation of the workers in the developed countries is enhancing the contradiction between labour and capital in these countries.

Second, the recessionary conditions are leading to increasing contention amongst the imperialist powers, in their desperate grab for a dwindling market and sustaining profit-levels. The collusion of the post-cold-war period is slowly evolving into growing contention; particularly between some countries of Europe and Russia on the one hand and the US on the other. Though collusion continues, when agreement is possible over the division of the spoils, this is becoming increasingly difficult, where the desperation to grab the maximum is becoming essential for the very survival of their giant TNCs — in the face of recessionary conditions, with a falling rate of profit and even big losses and bankruptcies.

And third, the US superpower, is now launched on a path of military adventurism throughout the world, with a twin purpose: (i) to grab markets and sources of raw materials and step up the level of exploitation of the third world to levels that existed in the colonial period and even beyond, and (ii) to keep at bay rival imperialist powers, by the flexing of its military muscle (and not merely through economic competition). It dreams of a US Empire, dominating, controlling and/or occupying, the entire world. This is reflected in increasing US unilateralism, contempt for the UN and other multilateral institutions and relying on its military might to gain economic, political and diplomatic advantage. It resorts to outright and crude threats, against not only the backward countries, but also against its imperialist rivals.

This is the dawn of the New World Order, where Pax Americana seeks to rule the waves, where none shall raise a finger against this tyrannical overlord. Hitler and fascism was born in the wake of the Great Depression, which pushed the world into the horrors of World War II. Today, the war-mongering and fascist demagogy of the Bush/Blair kind is also evolving amidst a severe recession of the major world economies, including that of the US — the worst since WWII. One-and-a-half years of desperate fiscal monetary measures have failed to pull the US economy out of recession.

Let us then see the extent of this recession to get further insight into the current geo-political maneuvers of the US and the reactions of the other imperialist powers.

Growing World Recession

Ever since the bursting of the bubble in early 2000 the world economy and the US economy has been in a downswing. By March 2001 it passed into recession. The Economic Outlook of the OECD 30 richest countries has forecast a mere 1.9% growth in the current year for its member countries. Anything below 2.5% is seen as recessionary.

Not that the economies were all booming in the earlier period either; it was only the boom in the American economy, which is huge in size, that gave some strength to the world economy. While, now the downturn is worldwide (except for China), in the earlier period, while America boomed, some country or the other faced severe crisis. So, during the 1990s there were a total of 60 recessions in the developed and underdeveloped countries 1. Of these, there was the ERM crisis in 1992, the Mexican crisis in 1994/95, the East Asian crisis in 1997, the Russian meltdown in 1998, the collapse of the Real in Brazil in 1998/99, and the major collapse of the Turkish and Argentinean economies since 2000 — the latter is still continuing. Japan has been in continuous recession; while the Russian and East European economies defacto collapsed over the 1990-1998 period, and it was only from 1999/2000 that they were able to somewhat stabalise at a small fraction of their earlier size.

The world’s second largest economy, Japan, has been in a state of decline for the entire decade. Japan is also the world’s largest creditor, the world’s largest saver, the possessor of a giant trade surplus and has the world’s largest foreign exchange reserves. Today its economy has been reduced to a desperate condition. Its crisis-ridden economy, with falling prices, shrinking output, anaemic aggregate demand and rising unemployment, has not been responding to various monetary measures. Several fiscal stimulus packages in the past decade have failed to avert deflation and prolonged economic stagnation. Unemployment is at its highest figure ever at 5.5%, and continues to grow. Bankruptcies continue unabated at 19,458 in 2002 — the second highest in the post-war era. The GDP growth rate for 2002 was yet again negative and is projected to be a mere 0.3% in the current year.2 It has recorded its largest fiscal deficit ever in 2002 at 7.9% of the GDP. 3

Russia’s economy, once a rival superpower, is now reduced to that of the size of a tiny country like Belgium. Though somewhat stabalised after the severe crash of 1998, it is today a weakened imperialist power, though it has a large military machine. Its political strength will lie in its alliance with one or the other major imperialist blocs, as and when they arise.

The East Asian crisis (actually economic attack of finance capital) of 1997 badly affected the so-called tiger economies pushing them deeper into the arms of the US octopus. Their financial bankruptcy and crash in stock exchange values allowed US TNCs to swallow up companies (e.g. Daewoo by GM) at throw-away prices.

Europe though not hit by any major crisis is also in the doldrums since the last three years. Particularly the German economy, which is one-third bigger than that of Britain and France, is the worst hit. GDP growth rate for the Euro area was a mere 0.2% in 2002 and is expected to be a mere 1.3% this year. Of this, Germany’s growth rate last year was just 0.2% and expected to be just 0.6% in the current year. Unemployment has peaked in Europe and keeps rising — by early this year it was 10.3% in Germany, 11.9% in Belgium, 12% in Spain and 9.1% in France.4 In Germany, 5 lakh more jobs were lost in just the two months of February and March this year. Massive bankruptcies have hit the German economy, including some large companies like Kirch (media), Holzman (construction) and Dornier (aircrafts) — 32,000 companies collapsed last year; the figure is expected to be 40,000 in the current year. Germany’s leading stock exchange fell last year by 44%, the biggest drop in the developed countries. Some indicators say it is facing the worst crisis since WWII. 5

The economies of the backward countries of the world are in dire states, where impoverisation and exploitation has been pushed to extremes rarely seen before. The richest 20% of the world grab more than 85% of the income. The three wealthiest persons in the world have combined assets greater than the combined population of the 48 poorest countries with a combined population of 600 million. One-third of the world’s 3-billion labour force is either unemployed or severely underemployed. The third world debt has now reached the astronomical figure of $2.8 trillion.6 Some economies, like those of Turkey and Argentina were pushed to collapse. Argentina saw its GDP decline yet again by 10% last year, its per capita income has halved and unemployment is at 25%; it is in the fourth year of its economic collapse.

Growth in global trade was zero in 2001 and barely 3% last year — compared to an average of 7% through the 1990s.Overall a UN survey has estimated that the global growth rate for 2003 will be just 2.3% (i.e. after including China’s growth rate of 7.5%), which means a continuation of the recession (under 2.5% is seen as a recession). Last year stock markets fell for the third year running — measured by the decline in the ratio of equity wealth to GDP, the current bear market (i.e. decline in stock-market valuation) is the deepest in history.7

But through all these ups and downs it is the US economy that has been able to make the maximum use of the offensive of capital, launched under the signboards of ‘economic reforms’ and globalisation. Its gigantic loot has resulted in its economy growing in the 1990s, from comprising 22% of world output, to as much as 30% of the total world output today. This is a phenomenal increase of nearly 1% per year. (Looked at from another angle the US economy was 3.7 times the German economy in 1990, today it is 5 times its size.) An example of the type of loot boosting the US economy was the estimated net outflow of a huge $30 billion from the 29 biggest third world countries in 2001 8 — the bulk of such loot would have been cornered by the US. Globalisation has benefited the US economy the most. Though a superpower even earlier, it has now achieved giant size (amounting for roughly one-third of world output), and is therefore able to more easily dictate to one and all, including to many of its other imperialist rivals.

Ofcourse, to counter the US monolith some countries of Europe have united into the Euro, which is posing a stiff challenge to the dollar. Besides, since 2000/01 the US too has been in a severe crisis, and like the Japanese economy, has not been responding to the huge stimulus packages handed out by the Bush administration. Though there was an enormous increase in the size of the US economy, the artificially inflated boom of the late 1990s, resulted in a deep crisis, once the bubble burst.

Crisis in the US Economy

In the year 2002 the US joined Japan in, what economists call, a Liquidity Trap: a situation in which the short-term nominal interest rates (controlled by the central bank), are so low (now down to 1.25% in the US) and so loosely connected to the level of aggregate demand, that further reductions are ineffective in fighting recession. The only time such a situation existed was during the Great Depression during the 1930s.9 In addition the US faces the biggest stock deflation since the 1930s — since early 2000 there has been a continuous fall in the stock market index, whereby Americans have lost some $8 trillion of net worth on the US stock exchange.10

A report says that the ongoing recession is firmly dated to March 2001. Since then, in the past 2 years, 2.1 million jobs have been lost in manufacturing alone and another one million in the service sector. Measured by employment, this is the worst recession in the US since the Great Depression. Joblessness is now at 6% of the working population and is expected to rise to 6½% by end June, compared to 3.9% in 2000. By late Sept 02, the US Census Bureau reported that the number of people living below the poverty line rose by 1.3 million in 2002, pushing up the total number of poor in the US to 33 million or 11.7% of the population. At the same time the average household income fell 2.2% in 2002, for the first time in a decade.

In 2001, of the top 500 TNCs of the US, though revenues rose by 3.3%, profits fell by a gigantic 53.5% — that is the biggest drop in corporate profits ever since the 48 years of the Fortune 500 listing began.11 The same report adds that 97 of the FORTUNE 500 companies reported losses of a total of $148.5 billion. These include giants like Ford, Lucent, Motorola, Qwest, Corning, AOL Time Warner, etc. In the year 2002 AOL Time Warner recorded the biggest loss ever in corporate history — $99 billion. The 11 largest airlines of the US recorded net losses of $7.7 billion in 2001, $10 billion in 2002 and another expected loss of $10.7 billion in the current year. They have shed one lakh jobs since 9/11 and are expected to shed another 13,000 by Sept. this year. The industry is carrying more than $100 billion in debt.12 Indebtedness of corporations stood at an all-time record high at $7 trillion of 70% of the GNP in the first quarter of 2001.

Over the last two years the US has witnessed an unprecedented rise in corporate bankruptcies including giants of the FORTUNE 500 listing. The WorldCom bankruptcy was the largest in US history. With assets of $100 billion, it was twice as large as Enron and four times as large as Global Crossing. WorldCom had 60,000 employees in 65 countries, 20 million customers and transmitted half the world’s Internet traffic.

Capital spending by business dropped 5.2% in 2001 and 5.7% in 2002 — the worst two-year decline since World War II.13 US manufacturers are today using just 73.5% of their capacity; i.e. 27% is lying idle.14 The situation in the car industry is even worse — it has the capacity to produce an extra 2 million more cars a year, as it is functioning at just two-thirds its capacity. Ford is planning to slash production by 16 per cent, or 9 lakh vehicles, by 2004, shutting five plants and slashing 12,000 jobs.15

The telecommunications industry took on $2.1 trillion in debt between 1996 and 2000 and jacked up investment by 15 per cent per year in real terms. Each firm tried to steal a march on the others, on the basis of projections of a massive growth in demand. By 2000 the telecom industry accounted for a quarter of the increase in the US economy’s equipment spending. Today the world has 39 million miles of fibre-optic lines, and telecom networks are operating at three percent of their capacity. In addition, despite 45 semiconductor fabricating plants having shut down in the US, the American semiconductor industry is said to suffer from 15 per cent overcapacity.16

It is a classic case of a crisis of over-production. In the past, lowering interest rates caused all business cycle indicators — production, sales, and employment — to move upwards. On this occasion, though interest rates have been reduced 12 times (in 13 months) to as low as 1.25%, there appears to be no light at the end of the tunnel. Besides, in order to create demand the Bush administration has given to the rich over $130 billion a year (for the next 10 years) in tax cuts. But even this stimulus has not worked. In the US two-thirds of the GDP comes from consumer spending. But with household indebtedness so large, it undermined consumer spending. American households had more debt than disposable income for the first time since 1999. By early 2001 household debt grew to 120% of disposable income.17

What is even worse is that all the economic fundamentals of the US are exceedingly fragile. A slight disturbance can bring the economy crumbling down. In 2002 the US dollar had fallen about 20% against all major currencies, particularly the Euro — the largest drop in value since 1987. In 2002 the trade deficit crossed $456 billion; i.e. 5% of the GDP. To cover this huge deficit, capital inflows of dollars must be $1.5 billion per day. If confidence in the dollar falls and investors from capital surplus countries park their money elsewhere, the $ will crash.

In addition, the budget, which has been in surplus all these years, is expected to run up a deficit of $300 billion this year.18 The US is also the most indebted country in the world with a domestic and foreign debt approaching $3.4 trillion or $12,000 (Rs.6 lakhs) per capita. Not only that, States and many municipalities are grappling with their worst fiscal crisis since World War II. Thousands are being laid off every month and some states have even delayed medicare payments for six months. From surpluses through the 1990, it is projected that state deficits in 2003 will be $29 billion, rising to #82 billion in 2004.

The crisis of overproduction and a falling rate of profit makes the scramble for world markets all the more desperate. With the US economic crisis so deep, the government, acting on behalf of its powerful TNC combines, will go to any length to gain further access to markets and sources of raw materials. More vigorous arm-twisting, threats, and further wars of conquest are bound to follow. The extent of the fierceness of US policy makers in this regard, is even to be seen in India, with the US government once again putting India on the Special 301 watch list (on May 2, 2003), threatening sanctions against the country. This is inspite of the fact that the Vajpayee government has bended over backwards to implement all the demands of the WTO and other such imperialist bodies. In other words the US is demanding even further capitulation to its demands. This order has come immediately in the wake of the Iraq conquest.

Of course, such attacks on the backward countries of the world will continue; but what has particularly disturbed the US is the rise of the euro. For the first time in the post WW II era a currency has risen as a potential threat to the hegemony of the dollar. For the first time the decline in the US economy was threatening to result in a rival imperialist center displacing its domination over the world’s economy.

Dollar Hegemony & the Rise of the Euro

Normally, a country whose national debt grows rapidly faces serious problems. Investors worry that it will not be able to service its debts, and they begin withdrawing their investments; bankers refuse to provide it fresh loans; and the country soon suffers a balance of payments crisis. If the debtor is a third world country, it is forced to turn for loans to the International Monetary Fund and the World Bank. These two institutions in turn stipulate a programme of ‘structural adjustment’, which depresses the consumption of the vast majority, depresses the cost of labour power, cheapens the country’s raw materials exports, hawks off public sector assets and natural resources to foreign investors at cut-rate prices, and so on.

However, till now the United States has been able to run up a truly giant national debt for a special reason. Being the world’s leading capitalist economy, and a military superpower, its currency has been used for payments between countries (and therefore for their reserves of foreign exchange as well). When it needs to pay its debts it merely issues a treasury bond (ie borrows from the capital market) to which investors from around the world rush to subscribe. Foreign investors buy bonds issued by the government, but also American corporate bonds, shares, and real estate. These inflows, soaking up as they do the world’s savings, ensure that the US is able to import more than it exports, year after year, without suffering the treatment handed out by the IMF and World Bank to countries like Argentina, Brazil, India, and so on.

This endless supply of golden eggs depends on the US remaining the supreme imperialist power and the dollar remaining the currency for international payments. However, that is precisely what is now threatened.

After Iraq, as country after country began switching to the euro (See article Politics of Oil…. In this issue) the hegemony of the dollar came under threat. Not only were some countries shifting to trade in the euro, they began investing their surpluses/reserves in euros rather than dollars. This process led to the weakening of the dollar vis-à-vis the euro, which is projected to drop even further by the end of this year. This weakening of the dollar further encourages countries to shift to the euro.

So, as mentioned in the Aspects of India’s Economy Nos. 33 & 34, as the dollar’s share of trade declines, central banks will want their foreign exchange reserves to be similarly distributed between the two currencies. Asian central banks have accounted for 80 per cent of the growth in global foreign exchange reserves, with current holdings of a gargantuan $1.5 trillion, most of it invested in American bonds. Around 85 per cent of Asian central bank reserves are estimated to be in US dollars. A shift of just 15 per cent would subtract $225 billion from the dollar and add it to the euro.

Another source of huge funds were the continuous flow of petro-dollars into the US. After all, oil comprises 10% of world merchandise trade, and the billions of revenues generated each year by the Arab countries, flow back to the US in the form of dollar reserves of these countries.

But, the revelations that a stellar gallery of American corporations led by Enron and WorldCom have been cooking their books, and that US manufacturing corporations’ profits fell by 65 per cent between their 1997 peak and 2002, would also unnerve foreign investors — who own a reported $1.5 trillion in US corporate equities. Also, with the Fed having drastically cut the interest rates (to a nominal 1.25%), in order to get the economy out of its crisis, there is little attraction for US bonds any longer. All this would result in these countries beginning to shift their funds to more secure investments. In fact the process had already begun since 2001 and began to pick up speed as the dollar continued its decline.

Of course, there are certain checks on these trends. For one, the world’s major financial centres are still New York and London, and Britain has still not joined the euro. The euro has as yet no financial centre to rival London and New York. Thus Iran is hesitant to actually make the switch to the euro because London is still the financial centre for Iran’s overseas business.

Moreover, neither Europe nor the Asian economies want to see the US economy collapse. First, they would not be able to liquidate their holdings in the US before that happened, and therefore would suffer huge losses. Secondly, the collapse of the US market for their goods would deal them a heavy blow. Thirdly, if the dollar lost value, American goods would become cheap in terms of other currencies, and displace European and Asian goods in their home markets. So, unlike Iraq, the EU and Asia would want to proceed slowly, protecting the value of their investments as they withdrew them.

However, that is assuming rational collective behaviour on the part of investors, far removed from reality. Once a sudden shift takes place, herd behaviour takes over. As each investor races to pull out his investments, investors collectively drag down the value of all their investments. "We seem to be approaching the cliff edge", says Avinash Persaud, head of research at State Street, a leading New York-based investment bank. "Even if everyone expects just a modest fall in the dollar they end up getting a violent one, simply because everyone will wait before buying" the dollar.19

So, with the capture of Iraq and its huge oil reserves, the US can prevent (or at least postpone) the catastrophic slide of countries shifting to the euro. In addition, of course, the US oil giants stand to make huge profits by cutting off France and Russia’s massive interests in Iraq. With Iraqi oil within its control the US will dictate terms, not only to Saudi Arabia, but also to Iran, Russia, Venezuela, all of who were beginning to shift to the Euro. In fact it will in all probability make Iraq pull out of the OPEC. So, through this military action it can, not only safeguard its huge stocks of petro-dollars, it can also prevent the trade in oil shifting to the euro. So, the military action will give the US economy big gains and prevent (for the time) the collapse of the dollar vis-à-vis the euro. On the other hand this will be a severe hit to the euro, just as it was beginning to rise.



The Carlyle Group

The March 28, 2002 issue of FORTUNE said, " The Carlyle Group, a Washington D.C. buyout firm, is one of the nation’s largest defence contractors. It has billions of dollars at its disposal and employs a few important people. Maybe you have heard of them: former Secretary of State Jim Baker, former Secretary of Defence Frank Carlucci, and former White House director Dick Darman. Wait, we’re just getting warmed up. William Kennard, who recently headed the FFC, and Arthur Levitt, who just left the SEC, also work for Carlyle. So do former British Prime Minister John Major and former Philippines President Fidel Ramos. Let’s see if we are forgetting anyone. Oh, right, former President, George Bush. …… The firm also has about a dozen investors from Saudi Arabia, including, until recently, the bin Laden family. …. Shafig bin Laden, one of Osama’s many brothers and a Carlyle investor, was in attendance at a Carlyle conference at a Washington hotel on the day the WTC/Pentagon were attacked!"

The kind of profit it makes is like that of any mafia outfit — not counting the standard 20% cut that goes to Carlyle’s partners and managing directors, the firm’s average annual rate of return has been 36%. Over and above this, the likes of George Bush Sr. are still paid roughly $5 lakh annually for the five odd lectures that he gives. One of the chiefs of Carlyle, Carlucci, happens to be a very close friend of Donald Rumsfeld. He claims he never discussed the ‘Crusader’ missile production contract with him. Maybe, but the Crusader is on the 2003 defence budget, making it likely that the Pentagon will ultimately buy 480 of the artillery systems for $5 billion.


Geo-politics of War

To sum up :

* The US, and indeed the world economy, is suffering from a crisis of overproduction.

* In order to stave off recession, the US central bank has been boosting demand by pumping in unprecedented amounts of credit.

* The US has the funds to do this because foreigners put their savings in US dollar assets.

* The US’s overall global supremacy and in particular its control over oil have sustained its status as the safest harbour for international capital.

* However, the US’s ability to soak up the world’s savings is a double-edged sword. If foreigners, who hold half or more of all the US currency, should decide to dump the dollar, its value would plummet, leading to yet more capital flying from the country.

* In order to prevent that happening, and to get foreign capital to return, the US would have to raise its interest rates steeply.

*But if that were to be done, given the vast addition to US debt since 1980, this time round a steep US interest rate hike could cause a crash heard round the world. This would happen because debt-laden American corporations and consumers would be unable to service their debts, so their assets would flood the market; asset prices would collapse, and banks — swamped with worthless assets instead of income — would in turn collapse. In short, there is a threat of a new Great Depression.

* For the time, with the military action on Iraq, the US will be able to stave off the challenge of the euro and the super-profits from oil will help in easing the recessionary conditions. A drop in oil prices will also help consumer spending on other commodities, which is at a new low, and on which the US economy is so dependent for it sustenance. It has also opened out a huge new market to the US, not only in reconstruction activities, but also for grains, etc., all of which will be paid for from oil revenue shared with the new Iraqi puppet government.

Now, given the above scenario of a deepening economic crisis, with a crisis of over-production, there is a desperate scramble for markets. This is particularly aggravated after the worldwide downturn since 2001.

Initially, in the early 1990s, the imperialists ganged up to increase their penetration ten-fold into the backward countries, penetrate the huge markets of a reformed (capitalist) China, and those that came under the hegemony of the erstwhile USSR. Globalisation was the catch-phrase of this massive offensive of Western capital.

In the first phases there was largely collusion between the imperialist powers — they jointly aggressed on Iraq, they had a common understanding on the Balkans, they jointly launched their offensive against the backward countries through the WTO, IMF, World Bank and even the United Nations, and they peacefully competed for the newly opened up markets of China, the USSR bloc, and the new markets prised open by ‘economic reforms’ in the backward countries of the world. Thereby, with this offensive the imperialists, particularly the US, saw windfall gains.

Yet, competition within the capitalists was acute. This was reflected in the frantic wave of Mergers and Acquisitions, creating monolithic enterprises in order to oust the competitor. Also, big business in Europe saw the necessity to merge, in order to withstand the competition of the giants from across the Atlantic. This necessity led to the step-by-step merger in Europe. First, there was the formation of the EU and then the floating of the common currency, the Euro. So, by the latter half of the1990s, the EU, with all its dissentions, began to emerge as a contender to the US. There were also plans for a separate European defence, independent of NATO.

Tensions were growing even earlier. Trade wars, particularly on the prices of agricultural commodities, which were simmering below, burst out into the open at the Seattle WTO meet in 1999. The current Doha round is deadlocked due to battles between the US and EU on this issue. In trade, the US has leveled heavy tariffs on European steel imports in order to protect its own industry. It has unilaterally retaliated at what it sees as European restrictions on imports of American beef and bananas, each retaliation accounting for a hundred million dollars or so of annual trade, and has rejected all European efforts to resolve these disputes. Without sanction from any international body, the US levels sanctions against European firms that deal with American enemies such as Cuba and Iran. More trade clashes loom. The world’s biggest aeroplane makers, the American Boeing and the European Airbus, are fighting a frenzied battle for shrinking orders. (See Box) In the current year, a dispute is set to explode over agricultural subsidies, genetically modified products, and overall agricultural trade.

Though united in their aggression of Yugoslavia on the Kosovo issue, the US’s arbitrary military methods began to surface, and the bulk of the fruits were grabbed by the US. Again in Afghanistan, though united in their aggression, US unilateralism came out more bluntly; the EU was cast aside to play a peripheral role, and the US seized not only Afghanistan but also the rich oil and gas deposits of Central Asia. The spoils of war went only to the US (with the British being given a small share); the EU countries were left with nursing humanitarian aid.

In other words, the US was beginning to use its military superiority to upstage Europe. Besides, with Afghanistan, the war for conquest and colonization has once again begun, of course under the pretext of a fight against terrorism. As part of this we witness the Israeli Zionist’s new round of aggression against the Palestinians, with full backing of the US. Here, ‘regime change’ has been peacefully achieved, with Arafat being virtually turned into a figurehead, and all power passing to the new puppet Prime Minister and his chosen ministry. But, on the Palestinian question too contradictions with Europe have been intense, with the EU not only supporting Arafat, but having funded a large part of the Palestinian Authority over the years.

Meanwhile, at the diplomatic level US unilateralism began to manifest crudely in all spheres — total contempt for the UN, and at all international forums. Whether at the WTO (access to essential drugs), or on the Kyoto protocol (on the environment), or on the World Food Summit (where it pushed its biotechnology products, rather than hunger of the poor), or on the Treaty on Torture (which the US refused to sign), or on the International Criminal Court (which it not only refused to join, but even threatened those who joined up with sanctions), or even at such innocuous bodies as the as the UN Population Fund (where the US withdrew its funding on the pretext that the UNFPA was assisting abortion in China), and even at the conference against Racism in South Africa.

After 9/11, the US used the event as a pretext to flex its military muscle throughout the world. By early 2002, the U.S. had sent troops into the Philippines, into Yemen, and Somalia. It had set up 13 new military bases in the oil-rich and gas-rich countries surrounding Afghanistan. And it had embarked on the biggest military build-up since the cold-war years of the Reagan administration. The joint chiefs of staff have quietly adopted a 20- to 30-year military plan for waging warfare against different states and armed groups across the world. In March of 2002, the administration announced that it was prepared to use tactical nuclear weapons in first strikes.

With the aggression and colonization of Iraq, the US has openly declared its intention to aggress and colonise any country that does not bow to its dictates. In other words the aggression on Iraq amounts to an attack on all third world countries. Even before the war was over it began military threats to Syria. It bombed the oil pipeline to Syria from Iraq. In end April a top US official warned Syria to mend its way or face "devastating attack". He demanded: Syria wind up its ‘terror offices’, stop support for Saddam, destroy all its chemical weapons (without providing any proof that they have them), stop support to the Hizbollah in Lebanon, release from prison all dissidents, and introduce democracy. He also reminded Assad that with Iraq in US control, Syria is ringed on all sides with pro-US regimes. Obviously ‘regime change’, with or without war, in Syria, is only a matter of time. Iran too has been threatened. Incidentally, both Syria and Iran have excellent relations with the EU and Russia.

The writing on the wall is clear: Under the banner of the "war on terrorism," U.S. imperialism is utilizing its political, military, and economic strengths to restructure relations throughout world and to entrench and fortify its position as the hegemonic power over the world economy and the international system. U.S. imperialism is widening its military superiority. It is seeking to secure monopolistic control over the world’s sources of oil — in the Persian Gulf, Caspian Sea, Africa and the South China Sea. It is seeking more privileged access to markets and raw materials. This is a quest to create the conditions for the unchallenged exploitation of hundreds of millions of people throughout the world.


Military Solution to an Economic Crisis

The US’s grand strategy, while portending tremendous upheaval and suffering for the rest of the world, thus has its logic. It is a pattern familiar to students of imperialism — a weakening imperialist power relying on military power and possession of colonies to make up for its ebbing economic strength. Even before the 1990s, as a superpower and in its contention with the USSR, the US had a massive net of military bases throughout the world : 627 in Europe, Canada and the North Atlantic; 121 in the Pacific and South-East Asia; 39 in Latin America; and seven in the Middle East and Africa. The 1991 assault on Iraq helped bring about the US bases in Saudi Arabia; its intervention in Bosnia, and later its assault on Yugoslavia, brought it bases on the rim of Europe in case Europe should secede from the US-dominated NATO. Since the invasion of Afghanistan, the picture has changed dramatically. US bases — at first temporary but soon permanent — sprang up in Uzbekistan, Tajikistan, Kyrgyzstan, Afghanistan and Pakistan, and US military advisors are stationed in Georgia. American naval vessels now regularly visit Indian ports, and a naval base in northern Sri Lanka appears in the offing with the US intervening in the Tamil national struggle there. "Over-all, the American military global presence is more pervasive today than at any point in American history", says John Pike, a military analyst in Washington.20 But bases are not enough. The US needs to suppress the mass and political forces that are struggling against it in these diverse regions. To meet this need there is a massive hike in US spending to train foreign militaries – which had already risen steeply during the 1990s (by 1999 US Special Operations Forces were carrying out joint exercises with 152 countries). "It’s like the counter-insurgency era all over again", a US Congressional aide is quoted as saying, referring to the Vietnam war era. "Only this time we’re going to be fighting ‘terrorism ‘instead of ‘communism."’ "On any given day before September 11, according to the Defence Department, more than 60,000 [US] military personnel were conducting temporary operations and exercises in about 100 countries."21

And in the ongoing military adventure of the US there is no military force that is any match to the US. It accounts for 40% of defence production worldwide, and (together with Britain) 50% of the arms exports.22

With economies of roughly the same size ($8 trillion), Europe (including Britain) will spend roughly $180 billion on defence this year, to the US’s $440 billion + an extra $75 billion for Iraq. Britain spends about $35 billion, Russia $31 billion and China $44 billion. While the US spends 3.5% of its GDP on defence, the EU-15 spends 1.9%.23 In other words the US/British/Israel AXIS will be spending over $550 billion on defence, while the rest of Europe will spend a mere $150 billion. It is a very uneven match, and Europe has further fissures. Besides it is not merely the expenditure, the US has today the most sophisticated arms, including the most deadly nuclear arsenal. Though France, Germany and Belgium have planned to go ahead with their own Force (independent of NATO) and France plans to increase its military hardware by $14 billion per year for the next six years, it will take much time to catch up with the US. Though an alliance with Russia may give it some teeth, due to Russia’s nuclear arsenal, they will still be no match to the AXIS powers in a conventional war.

If we turn to exports, we find that in the year 2000, US arms exports was $14.2 billion; UK $5 billion; Russia $3.5 billion; France 1.5 billion; Germany $0.8 billion; Sweden & China $0.5 billion each. The main arms importers, except China, were governments close to the US, and those likely to be a part of the US global strategies. Between 1996 and 2000 the main importers were: Taiwan $12.2 billion; Saudi Arabia $8.2 billion; Turkey $5.8 billion; China $5 billion and India $4.2 billion.24

Besides the military bases already mentioned, the US today has 12 armadas or battleship groups, each based on a giant aircraft carrier (like Enterprise) which patrol the 7-seas round the clock. As an example the Enterprise is as high as a 20-storeyed building and 330 metres long; it has a crew of 5,600 and 70 hi-tech aircraft; accompanying it are 15 warships, including two submarines, 2 Cruisers, 6 destroyers, and 14,000 servicemen.

The arrogance of the AXIS, seen during the Iraq war and after, is partly due to this overwhelming military superiority. Though France, Germany, Russia and others made diplomatic moves against the AXIS on Iraq (that too hesitantly) they could not dare lend military assistance, even though it may mean loosing billions of dollars of interests in Iraq. In such a scenario it is the gun that determines both the politics and the economics. At best the allies will seek a part of the spoils of war through diplomatic pressures and compromises. On the other hand, the cake will be grabbed by the US TNCs, a few crumbs thrown to the puppy Britain, and the US will utilize the doling out of other Iraqi contracts primarily to seek to break the alliance of France, Germany and Russia; particularly to isolate France, which has been most vocal in its opposition.

Yet, due to the severe crisis in the US economy, the amount handed out is likely to be a pittance, thereby only enhancing the contradiction between the AXIS and the other imperialist powers. In fact, even Britain is dissatisfied over the way the US has acted to monopolise the bulk of the Iraqi contracts even before the war started. So, increasing contention is inevitable.


Shock and Awe’ do not Frighten the People of the World

As we write this article today news has come in that US troops fired blindly into a procession taken out on the occasion of Saddam Hussain’s birthday, in a small town 50 kms from Baghdad. They were demanding the US troops to get out. Official reports say 13 were killed (6 children) and 75 wounded. The actual figures would be much higher. Since then, reports (though heavily censored) have been coming in of demonstrations in numerous towns all over Iraq. So, resistance in Iraq continues and will increase. Together with this, Israeli aggressiveness against the Palestinians (the US’s new ‘road map’) and US threats to Syria, Iran and a lesser extent even Saudi Arabia (it has withdrawn it military base from there, afraid of mass discontent) is turning the entire Middle East into a boiling cauldron. The entire Arab world is likely to rise up in arms against, not only the AXIS, but also their Arab puppets that rule them.

But the US’s destabalisation plans extend well beyond the Middle East. Its domination of Central Asia through the occupation of Afghanistan; its pincer movement in S.E. Asia by its threats to North Korea (S. Korea already stations 37,000 US troops) and the setting up of a base in the Philippines; its extensive military intervention in all the countries of South Asia; its attempts to overthrow the government of Chavez in Venezuela and its military intervention in Columbia; its strategic fear of China and its attempts to encircle and contain its growing influence in Asia; and its high profile diplomatic offensive in Europe and Russia to subvert the growing potential of a rival imperialist power bloc — are all a part of the new grand strategy of the US imperialists to build its Empire and maintain the hegemony of the Dollar.

This will result in great instability throughout the world, growing militarisation, fascism, and wars of aggression by the US directly or through their surrogates in other parts of the world. Increasing discontent at home due to the growing economic crisis will be subverted through a new kind of McCarthyism — fascist repression through the newly built up ‘Homeland Security’; mass hysteria whipped up by control of the monopoly media (already seen after 9/11), and Gestapo-style intelligence networks stretching deep into all sections of society. The so-called rule of law is already being replaced by the rule of the mafia. The Bushes, Rusmfelds, Cheneys, Ashcrofts, etc already speak in a Hitler style. And as the economic crisis deepens their ruthlessness, at both home and abroad, will grow by leaps and bounds.

Yet, in reaction to the horrors of war, impoverisation and globalisation, we have already witnessed a mass upsurge throughout the world, particularly in the developed countries. The millions who have taken to the streets before the war and even after have been unprecedented in their size. But the war could not be stopped. On the contrary the ruthlessness and brutality of its ‘shock and awe’ campaign is to show to the world the futility of opposing US designs. It was planned to ‘shock and awe’ not only the Arabs, but also all dissidents throughout the world and even potential dissidents. The rulers of some countries, who meekly opposed the war, have themselves turned weak-kneed, many currying favour to seek a piece of the spoils. This may, for some time, demoralise a section of the mass upsurge. A feeling of helplessness in the face of a mighty power may result in passivity amongst a section.

Yet, on the other hand, the brutalities will give rise to enormous discontent and resentment. Besides, to look only at the immediate without seeing the potential of the future can lead to some to wrong conclusions. No doubt, in the face of such an inhuman kind monster the carnival-type opposition of the West will have to take on a more militant character to be at all effective. The growing anti-imperialist/globalisation cultural movement will have to take on more effective forms of struggle and organization as well. But, in the present international scenario any form of compromise with or appeasement of the AXIS forces will only result in their increasing aggressiveness. History has shown that any appeasement of the fascists only whets their appetite for greater ruthlessness.

Besides, ‘shock and awe’ may frighten some only in the immediate sense. The recklessness of the AXIS, built on their arrogance of military and economic power, will result in pockets of resistance growing in places least expected. To fight such a monster the people will soon realize (as the Iraqis did) that guerrilla forms of struggle, whether rural or urban, will be the only effective form to neutralize their mighty firepower. Today in Iraq, the US forces are panicky at even the smallest form of guerrilla action, or even open mass actions. In such a situation the AXIS forces will be hit on hundreds of fronts, turning their arrogance into a nightmare. The more they extend their Empire, the more they will get enmeshed in thousands of battles.

Besides, with the deepening economic crisis and the growing dogfights amongst the imperialists and various capitalist groupings, the increasing contention will evolve into imperialist blocs. Even today the present alliances are not at all consolidated — in the US grouping, countries like Italy and Spain are likely to fall out; and in the other group, Germany has a sizable opposition party demanding alliance with the US. Though it may take time for a rival bloc to evolve and directly confront the AXIS, due to their lack of unity and poor military strength, these powers are bound to become more assertive than presently seen, and may even discreetly support anti-AXIS forces economically and even militarily, in order that the US get bogged down on numerous battle-fronts. Though there are much interlinking economic interests across the Atlantic, (which tend to reduce the sharpness of the conflict at times), growing contention between the imperialist powers is inevitable. This will give a big boost to the anti-AXIS, anti-war movements throughout the world. Even within the AXIS there is a large section of the British ruling class opposed to it.

These two factors combined will knock the teeth out of the US’s ‘shock and awe’ arrogance. So, in such a scenario if the revolutionary and democratic forces maintain and develop their strength; develop a wide anti-war anti-US movement uniting with all possible forces; strengthen guerrilla and partisan combat; advance people’s wars in the backward countries; utilize the contradictions in the imperialist camp effectively, without compromising on principles; the difficulties being faced today in standing up to this monster will turn into its opposite. With correct tactics, the people’s forces can, in the future, come on to the offensive, turning the AXIS to the defensive.

In the oncoming battles it is the genuine communist forces alone that will be able to give the lead for the type of struggles mentioned above. Unfortunately today they are as yet weak. The big mass upsurges chiefly involved a various assortment of forces dissatisfied with the impact of globalisation. The communists and those seeing socialism as the only alternative, were few. But, however small, if they, in future, are in the forefront of the oncoming battles, they will win the confidence of the vast masses that are at present uncertain about the future due to the failures in the USSR and China. Merely debating the advantages of socialism will have little impact over the vast masses. To be in the forefront of the battles; to simultaneously scientifically analyse the present situation in a way that is convincing to all; and finally to link all this to the socialist alternative as the only possible alternative — could be the most effective way to draw the advanced sections amoungst the masses to the communist alternative.

No doubt the situation for a new revolutionary upsurge is turning more and more excellent. Amidst the impending great turmoil, and untold sufferings, sparks of a new light flash on the horizon. Let us all together, hand in hand, walk towards that new dawn.




1. The Economist Dec.1, 2001

2. The Economist Dec.1, 2001

3. Economic Times; March 12, 2003

4. The Economist; Feb.22, 03

5. The Economist; Jan.11, 03

6. The Spark, March 23 2003

7. The Economist; Jan.4, 03

8. The Economist; Feb.2, 02

9. Economic Times August 2, 2002

10. Economic Times Feb.20, 2003

11. FORTUNE April 15, 2002

12. Economic Times; March 13, 2003

13. FORTUNE March 13, 2003

14. Business Week; Feb.10 2003

15. Aspects of India’s Economy, Nos. 33 & 34

16. ibid

17. The Spark March 23 2003

18. Economic Times, Feb.20, 2003

19. Aspects of India’s Economy Nos. 33 & 34

20. Aspects of India’s Economy; Nos.33 & 34

21. Ibid

22. The Economist; July 20, 2002

23. The Economist; Nov. 23, 2002

24. The Economist; July 20, 2002





Contents   Appendix


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