4. The End of the Affluent Alliance

The basic framework of policy formation tends to remain in place as long as the institutions of power and domination are stable, with the capacity to deflect challenges and accommodate or displace competing forces. That has been true of the United States in the postwar period, indeed long before. Nevertheless, policies have to be adapted to changing contingencies.

A change in world order of lasting importance was recognized officially in August 1971, when Richard Nixon announced his "New Economic Policy," dismantling the international economic order established after World War II (the Bretton Woods system), in which the US served, in effect, as international banker, with the dollar as the world's sole international currency, convertible to gold at $35 an ounce. By that time, "the affluent alliance had come to the end of the road" and "the disorder was getting too serious for aspirins," international economist Susan Strange observed. German-led Europe and Japan had recovered from wartime destruction, and the US was facing the unanticipated costs of the Vietnam war. The world economy was entering an era of "tripolarity" -- and also, crucially, of stagnation and declining profitability of capital.²⁷

The predictable reaction was a rapid intensification of the class war that is waged with unceasing dedication by the corporate sector, its political agents, and ideological servants. The years that followed saw an attack on real wages, social services, and unions -- indeed any kind of functioning democratic structure -- so as to overcome the troublesome "crisis of democracy" brought about by the illegitimate efforts of the public to bring their interests into the political arena. The ideological component of the offensive sought to strengthen authority and habits of obedience, to diminish social consciousness and such human frailties as concern for others, and to instruct young people that they are confirmed narcissists. Another objective has been to establish a de facto world government insulated from popular awareness or interference, devoted to the task of ensuring that the world's human and material resources are freely available to the transnational corporations (TNCs) and international banks that are to control the global system.

The US remains the largest single economy, though declining relative to its major rivals, which are not without their own problems. Those faced by the US are also too serious for aspirins, though little more is available thanks to doctrinal and policy triumphs that have diminished the capacity for constructive social action directed to the needs of the irrelevant majority, one happy consequence of Reaganite debt-creation.

Nixon's response to the decline of US economic hegemony was forthright: "when you're losing, change the rules of the game," economist Richard Du Boff observes. Nixon suspended the convertibility of the dollar to gold, overturning the international monetary system, imposed temporary wage-price controls and a general import surcharge, and initiated fiscal measures that directed state power, beyond the previous norm, to welfare for the rich: reduction of federal taxes and domestic expenditures, apart from the required subsidies to the corporate sector. These have been the guiding policies since. They were accelerated during the Reagan years, largely following Carter Administration prescriptions that were reshaped by the more doctrinaire Reaganites to bring about a huge growth in debt at every level (federal, state, local, household, corporate), with little to show in the way of productive investment. One crucial element is the incalculable debt of unmet social needs, a mounting burden imposed upon the large majority of the population and future generations.

Nixon's initiatives constituted "a sort of mercantilist revolution in domestic and foreign policy," political economist David Calleo observed a few years later. The international system grew more disorderly, "with rules eroded and power more significant." There was less "rational control over national economic life," hence great advantages to internationalist business and banking, freed from capital controls and official restraint and secure in the expectation of a state-organized public bail-out if something goes wrong. International capital markets rapidly expanded as a consequence of the decline of regulation and control, the huge flow of petrodollars after the 1973-1974 oil price rise, and the information-telecommunications revolution, which greatly facilitated capital transfers. Vigorous bank initiatives to stimulate new borrowing contributed to the Third World debt crisis and the current instability of the banks themselves.²⁸

The rise in oil prices (preceded by a comparable increase in price of US coal, uranium, and agricultural exports) yielded temporary advantages for the US and British economies, providing windfall profits for the energy corporations, primarily US and British, and inducing them to bring into production high-cost oil (Alaska, North Sea) that had been withheld from the market. For the US, rising energy costs were substantially offset by military and other exports to the Middle East oil producers and huge construction projects for them. Their profits also flowed to Treasury securities and investment; support for the economies of the US and UK has long been the primary responsibility of the Arab Facade of local managers.²⁹

The same years saw the stagnation and collapse of the Soviet empire, which had interfered with the planned global order in crucial ways (chapter 3). The power of the state capitalist industrial societies was enhanced further by the economic catastrophe that swept through most of their domains in the 1980s. The sense of foreboding throughout the Third World is readily understandable.

²⁷ Strange, International Economic Relations of the Western World (1976), cited in Wachtel, Money Mandarins, 79; 137, on profitability.

²⁸ Ibid. Du Boff, Accumulation, 153f.; Calleo, Imperious Economy, 63, 116, 75.

²⁹ See particularly Rand, Making Democracy Safe; and on the effects, my 1977 article reprinted in TNCW, ch. 11; also ch. 2. DD, ch. 6.1. See also Yergin, Prize.