The Empire is Striking Back, gross failure continues to be handsomely rewarded, and the world economy struggles to find its footing without the Global Minotaur.

That the Empire has struck back there is no doubt. Goldman Sachs’ Lloyd C. Blankfein just rewarded himself with $19 million bonus  for 2010: the year during which he appeared in front of a Senate Committee, a court , an SEC investigation revealing in full technicolor the great variety in which GS broke the law, manipulated markets and even defrauded its clients. And in  a bid to make this bonus seem positively reasonable, Transocean, the offshore drilling firm responsible for running the Deepwater Horizon rig in the Gulf of Mexico, has awarded large bonuses to its top executives. Guess what for: For its “best year” for safety.

Granted that the Minotaur’s Handmaidens (see here, here and here) are back with a vengeance, what can we say about  a world in which the Global Minotaur has perished while its Handmaidens are wreaking havoc?

Will the global economy  manage to find a new balance? Or are we in for a period of permanent crisis?

Here is my verdict on the matter, in the form of the concluding chapter to my Global Minotaur (to be published in August by Zed Books):

Chapter 9: A Future without the Minotaur?

History’s actors

“We are an Empire now, and when we act, we create our own reality. And while you are studying that reality – judiciously as you will – we will act again, creating other new realities, which you can study too, and that’s how things will sort out. We are history’s actors…and you, all of you, will be left to just study what we do.”[1]

With these words, a high-ranking US official neatly captured the essence of America’s post-war magnificent audacity. Not once, but twice the United States smashed pre-existing realities to fashion new ones. The first time, it had no choice. The Second World War had thrust America into the role of an unwilling reality-fashioner. It responded brilliantly, with a Global Plan that delivered global capitalism’s finest hour. And when its Global Plan reached its sell-by date, the United States spent no time in dithering, or ‘studying’ the existing reality.

Instead, it actively sought to disintegrate the degenerating reality, to cause a major, world-wide crisis that would spawn a newer, hyper-vibrant reality: the Global Minotaur. For the second time in its history, America reshaped the world not so much in its own image, but in a manner that converted a creeping weakness into majestic hegemony.

The key to America’s success was recognition of the indispensability of a global surplus recycling mechanism. Hegemony differs from domination, or from vulgar exploitation, in that the true hegemon understands that its power must be replenished not through further extraction from its subjects, but from investment in their capacities to generate surpluses. To take from its subjects, the hegemon must master the art of giving in return. To maintain power, it needs to bolster its surpluses; but to do that, it must redirect large parts of those surpluses to its underlings.[C1]

All through the two distinct post-war global realities that it singlehandedly created, America took great care to put in place serviceable GSRMs, over which it expected to have total control. During the Global Plan era, it assumed it would be the surplus trader. Its hegemony thus revolved around the recycling of large parts of its surplus capital (earned on the back of its trade surpluses) to Japan and Europe; as was intended, it benefited from this recycling, since the Japanese and the Europeans used the transfers to buy goods and services produced or controlled by the USA.

When the United States found itself, unwittingly, in a large trade and budget deficit, it moved on. It caused a global earthquake as a prelude to the Age of the Global Minotaur – my allegory for a massive GSRM that reversed the flow of global trade and capital flows. America henceforth was to provide foreign industrial centres with sufficient demand for their output, in return for around 80 per cent of their capital flows. That this violent transition took at least a decade of terrible disintegration, debt crises, wholesale instability and global stagflation was, to America’s elites, a reasonable price to pay. No more than a transition cost, for which the world’s social economy and America’s working families were billed by our history’s actors – the astute officials of successive American administrations.

Self-restraint and the dangers of success

Self-restraint, as the philosophers know, is a rare and bewildering virtue. It is also a virtue that tends to get unstuck the more powerful we become. In this, it resembles the relationship between trust and success: the stronger the bonds of trust between us, the greater our collective and individual success. But success breeds greed, and greed is a solvent of trust. So it is with self-restraint: having it can help one succeed, but then that success poses a threat to one’s self-restraint.

This paradox of success, as it pertains to self-restraint, proved the undoing of both the global ‘realities’ that the United States created after the Second World War. The first time, it was the US government that fell prey to its negative engineering. The second time, it was America’s private sector, and in particular its financial sector. To see how these two failures were snatched from the jaws of success, let us consider two questions, one concerning 1971, the other 2008.

What tripped up the Global Plan, causing it to lose its footing and to collapse in 1971? The answer: the US government’s inability to exercise self-restraint vis-à-vis its own capacity to exploit its original exorbitant privilege – its ability, as custodian of the world’s reserve currency, to print global public money at will.

And what was it that seriously wounded the Global Minotaur in 2008? Again, it was an American failure of self-restraint. Only this time, it was not a failure of the US government (though a case can be made that it happened on the US government’s watch), but of the private sector generally and of the banks in particular. The American financial sector failed spectacularly to exercise self-restraint vis-à-vis its capacity to exploit its newfangled exorbitant privilege.: its ability, as custodian of global financialisation, to print global private money at will.

Can the Minotaur survive?

No, I do not believe it can. The Crash of 2008 knocked so much of the financial stuffing out of the American economy, and depleted New York-based financialization of so much of its overall energy, that its magnetic power over foreign capital will not recover. Wall Street may have been fully resurrected, and those banks that were too big to fail may have grown even bigger (at least in relative terms), but the capitalization of Wall Street is now too thin to attract the tsunami of foreign capital that kept the Minotaur alive and kicking. What is more, the new regime that has been established since 2008–09 in the United States and Europe – the ‘system’ I have labelled bankruptocracy – is too introverted and insufficiently attractive to act as a ‘drawing card’ for the necessary capital inflows. No, the Global Minotaur today is at the stage the Global Plan was at after 1971: a state of gradual, but irreversible, disintegration.

The state of global play

Despite the welcome rise of the ‘emerging economies’, we still live in a world dominated by the West. Post-Minotaur, this means that our lives are governed by the Global Minotaur’s surviving handmaidens: Wall Street, Walmart, Germany’s provincial mercantilism, the European Union’s absurd pretence that a currency union can prosper without a surplus recycling mechanism, the growing inequities within the United States, within Europe, within China, etc., etc. A world without the Minotaur but ruled by its handmaidens is an illogical, absurd place.

The best example of this absurdity is the way in which public debate deals with the so-called global imbalances: the systematically increasing trade surplus of some countries (Germany and China are good examples), which are mirrored in increasing trade deficits in others.[2] All commentators are now in agreement that increasing global imbalances are a terrible thing. One would, consequently, be excused for imagining that a reduction in global imbalances would have been welcomed. But alas, the opposite is the case.

After 2008, because of America’s deep recession, its trade deficit shrank. The global imbalances thus diminished. However, with this reduction came a drop in the demand for China’s and Germany’s exports, and this led to the crisis spreading to the rest of the globe. So we are in the weird situation of exorcizing global imbalances, while at the same time suffering when they diminish.

The puzzle dissolves the moment we begin to think of these matters in terms of the Global Minotaur parable – of a terrible beast that nevertheless stabilized an unstable world by filling the gap left by the GSRM that went missing in 1971. And now that the beast is gone, our world is in a state of permanent instability, chronic uncertainty and a potentially protracted slump.

The missing mechanism

Much hope is being invested in China, as is evident all around. Can the Dragon replace the Minotaur as the missing stabilizing force? Again, I am forced (by the preceding analysis no less) to answer in the negative – despite my unconditional belief in China’s infinite creative capacities. The reason I do not think it can is simple: global capitalism cannot be stabilized on the basis of more investment, better gadgets, faster railways, smarter innovations or sharper market solutions. The stability of global, and also regional, capitalism requires a GSRM – a mechanism that markets, however globalized, free and well functioning they might be, cannot provide.

So can China supply that missing GSRM? I do not see how it could, or at least not at this stage of its development. Undoubtedly, China’s leadership is well aware that the current architecture of international finance is bunk. Li Ruogu, head of China EximBank, a major international investment bank, said in 2008: ‘The financial crisis…let us clearly see how unreasonable the current international monetary system is.’ Jiang Yong, a representative of the China Institutes of Contemporary International Relations, is more forthcoming: putting an end to America’s dominance of the monetary system is ‘as important as New China’s becoming a nuclear power’.[C2] [3]

However, a GSRM cannot be put in place on the basis of wishful thinking. China will, without a doubt, work hard, and with much success, to create a Chinese version of globalization – one that puts Beijing at the centre of a vast network of trade and investment deals with India, Africa and Latin America, but that also involves European, American and Japanese multinationals. It will try to keep US, European and Japanese officials at bay and, additionally, will promote its own currency, the RMB, as the main means of exchange within those networks. However, none of that, on its own, raises the prospect of an effective GSRM that could stabilize the world economy.

And now what?

Unless a GSRM materializes soon, it is better not to contemplate the future. On the one hand, we shall have a West caught in the poisonous webs of the flagging Minotaur’s handmaidens, unable to rise to the challenges of our post-2008 world, stagnating, losing its grip on reality, failing to match its outcomes to its capacities or to create new ‘realities’. On the other hand, there will be the emerging economies, bristling with people ready to transcend constraints, to spawn new ‘realities’, to expand existing horizons. Such a two-speed world would be highly inflammable, predicated as it is on the clash between those speeding ahead economically and the others who, while stagnating, still maintain a virtual monopoly over military power, over the world’s reserve currency and over the planet’s transnational institutions (the UN Security Council, NATO, the IMF and the World Bank).

So, if a GSRM is sine qua non for a stable globalized social economy, and if without it we run the risk of returning to a pre-Second World War form of radical precariousness (with the added risks emanating from modern means of mass annihilation), is there a brighter, alternative future?

One bright scenario would see the formation of a grand coalition of emerging countries, which would forge a de facto GSRM on the basis of planned investment and trade transfers between them. For instance, instead of China simply stepping on Brazilian toes, and purchasing Brazilian productive assets without the consent of Brazilian officials, imagine a system whereby China’s investments are channelled on the basis of some agreement with Brazil’s government that involves capital inflows into Brazil, analogous to Brazil’s sale of primary goods to China and Chinese technology transfers to Brazil. Such agreements between Brazil, China, Argentina, India, Turkey and selected African countries could act as a GSRM that would promote stable growth. The fact that it would leave our Western bankruptocracies out on a limb would be the icing on the cake.

A second, even brighter, scenario would be for the West to have an epiphany and, at long last, embrace John Maynard Keynes’ suggestion of an International Currency Union – the very suggestion that America rejected at the Bretton Woods conference of 1944. Is this far-fetched? Very much so. But then again, the Crash of 2008 has concentrated some intelligent minds. I was astonished recently by a radio interview featuring Dominique Strauss-Kahn, the director of the IMF. Responding to a journalist’s question about how the global economy ought to be reconfigured in the aftermath of the 2008 Crisis, Strauss-Kahn said:[C3]

Never in the past has an institution like the IMF been as necessary as it has been today… Keynes, sixty years ago, already foresaw what was needed; but it was too early. Now is the time to do it. And I think we are ready to do it![4]

Will we ‘do it’? And, if so, will we ‘do it’ in the context of existing institutions, like the IMF – i.e. remnants of the long-lost Global Plan? The answer depends, once again, entirely on the United States of America. If America’s policy makers grasp the meaning and irreversibility of the Global Minotaur’s demise, and are energized by the dystopian prospect of a permanently stagnation-prone world economy, there is a chance of a future that will prove rational, stable and pregnant with at least an iota of hope that our latest Crisis will be allowed to unleash its creative potential. Perhaps centuries later, our own Minotaur’s death will inspire the poets and the myth makers to mark its demise as the beginning of a new, authentic humanism.