Ankie Hoogvelt (2010), Globalisation, Crisis and the Political Economy of the International Monetary (Dis)Order, Globalizations, March – June 2010, Nos. 1-2, pp.51-66.
In this article, Hoogvelt argues that the deep cause of the financial crisis of 2008 has to do with globalized financialization spurred by technological innovation that made possible instantaneous trade and financial transactions. Similarly, the information revolution was central to the emergence of the securitization of markets:
“The ascendancy of real time over clock time meant that the core dichotomy between capital and labour was fundamentally altered with capital operating in real time and labour continuing in clock time. As Castells put it, capital hence could escape into the hyper space of pure circulation, while labour dissolved its collective entity into infinite variations of individual existences. In other words, it disappeared as a social force. Under conditions of the globalised informational economy capital became globally coordinated while labour became individualised (Castells, 1996, p.476).
Within capital, furthermore, it is the financial sector in its pure monetary form that has moved along furthest in respect of ‘real-time’ (or if you like, electronic) transactions.
The over-bloated financial sector has come to dominate and direct all other sectors, literally sucking the life blood out of them as profits made in the lower sectors of clock time commerce and investments are siphoned off into the hyperspace of pure circulation.” (54)
This, of course, is at the roots of increased inequalities within and between nations. And since there is only so much that the global wealthy class can spend on consumption, financial instruments were invented to soak up some of that extra capital contributing to the instability of financial markets are more and more complex and risky instruments were created.
Overbloating is not new (see: bubbles and busts cycles) so what is new with this crisis (and the next ones that are sure to come? For Hoogvelt, globalization, obviously. But also the fact that crises will be beyond the regulatory power of individual governments and the absence of single monetary power. However, for Hoogvelt, in analyzing crises, in common discourse, there is always an underestimation of political power, as if the economy was this (somewhat magical) independent realm and very little full explanation of the role of power between states where currency markets are used as instruments of financial warfare and search for hegemony.
For instance, Hoogvelt argues that Nixon’s ending of the Bretton Woods exchange regime was a move against ascendant Europe and Japan (so was the oil crisis, orchestrated by Kissinger). This opened the era of instability and financial risk (with the correlative invention of financial instruments designed to reduce exposure and insure against risk). Hence emerged the global casino.
For Hoogvelt, central in the financial warfare that the US engaged in against its competitors are the hedge funds where US funds are globally dominant. Hedge funds was the financial firepower unleashed against fast-emerging Asian countries in the late 1990s to force them to remove their development state regimes, and force them to accept IMF structural adjustment programs.
The third frontline in this financial warfare is now China, except that the US (and the dollar) is now in a much weaker position, having bailed out the financial sector.
“The whole point about a reserve currency is that it is meant to provide some stability to international financial transactions. With this new [carry-trade] function, it has become instead a source of instability and volatility in the financial markets and this will encourage both governments and private markets to dump the dollar. On its own the debauching of the dollar by the Obama administration may not be quite enough to undermine the dollar’s privileged position as a reserve currency. But coupled with other, geopolitical, motivations, it may well herald a profound shift in the hegemonic control of the world economy.
Both in the run up and in the wake of the crash of 2008 there has been a crescendo of voices advocating various pathways toward a new monetary order with either a single global currency, or – as a first step – a global unit of account, acting as a replacement for the dollar as reserve currency, concurrent with moves towards a global system of governance or a kind of world central bank. Distinguished academics like Joseph Stiglietz, Robert Mundell, and James Tobin have taken up the cause of a single world currency (cf. Marshall, 2009).” (62-3)
For Hoogvelt, this is a clear sign of the external limit to the hegemony of the US over financial markets (especially, the US has lost its hegemony over petro-dollars). From a political economic perspective, there is no doubt about a US decline. And Hoogvelt sees a lot of benefits to a global reserve currency in terms of stabilization of the global financial markets although the necessary political consensus is not there for that to happen.
But as Hoogvelt notes, once financial hegemony is gone, all that will be left is naked military power and even that has obvious limitations (in addition to being the only acceptable form of stimulus for American politicians and public opinion, as noted by Ian Welsh). But the permanent deployment of military power involves the creation of permanent crises.
Citing Tom Englehardt (2009), Hoogvelt concludes, “War is not the American way.”