Although global capitalism cannot be regarded as synonymous with the USA, Harvey (2003) suggests that the reconfiguration of global capitalist relations since the 1970s is inseparable from the efforts of the United States to maintain its post-war hegemonic position in the face of looming economic crisis and impose a ‘new imperialism’. The post-war emergence of the US as the capitalist economic and military superpower still left it vulnerable to accumulation crises: American industry needed access to overseas markets to sustain production and profitability, and this has remained a key driver of US economic, foreign and military policy ever since. The 1944 Bretton- Woods agreement established the US dollar as the international reserve currency with a peg to gold. This macroeconomic regime can be regarded as an attempt to manage a classic policy trilemma (see Obstfeld et al., 2003; Best, 2005), i.e. the difficulty of simultaneously sustaining stable exchange rates, free-flows of capital and autonomy over domestic government spending. The Bretton Woods negotiations established a macroeconomic order in which currency values were stabilised through pegs to the dollar, transborder capital flows were tightly regulated, and governments were able to sustain spending on welfare and services (hence the classic Keynesian policy of counter-cyclical spending to stimulate recovery from recession).
The Bretton-Woods arrangements were destabilised by the growth of off-shore Eurodollar markets These allowed money markets among offshore banks to issue dollar-denominated credit at favourable rates not directly determined by the Federal Reserve81. As Walter Wriston, Chairman of Citibank commented;
‘National borders are no longer defensible against the invasion of knowledge, ideas or financial data […] The Eurocurrency markets are a perfect example. No one designed them, no one authorised them, and no one controlled them. They were fathered by controls, raised by technology, and today they are refugees, if you will, from national attempts to allocate credit and capital for reasons that have little or nothing to do with finance and economics.’ (Wriston, 1979, quoted in Pemmaraju, 2001.)
The accumulation of US dollars reserves held off-shore (and hence outside the direct jurisdiction of the Federal Reserve) continued to expand to a point where the ratio of dollars to federal gold reserves could not be sustained (and indeed, some investors began borrowing dollars in order to redeem them for gold). Consequently, when the dollar’s convertibility into gold was suspended by the Nixon administration in 1971, there was a depreciation in its value. In turn, this meant that the international currency system lost its intersubjectively agreed reference point. The break-down of the gold-peg codification meant that valuation had to be determined by money-market supply and
81 As Stalder (1997) and Pemmaraju (2001) point out, this was partly a side-effect of Regulation Q, introduced
in the wake of the Wall Street crash and the great depression, which placed controls on US interest rates. The growth of the Eurodollar market was also fuelled by the strategy of communist states (initially China followed by the Soviet Union) to maintain foreign currency reserves outside US jurisdiction. The Eurodollar market was highly significant because it not only circumvented many of the Bretton Woods controls on transborder capital, but also reterritorialised the control of credit-creation (and hence the generation of money) outside the spaces of state jurisdiction. This also meant that the international capital flows circulating outside the sphere of state jurisdiction could exert pressure on governments which attempted to intervene in the economy in ways not aligned to accumulation imperatives.
demand. However, this was about to be complicated by other macroeconomic developments. In 1973, OPEC had imposed significant price increases (400%) at the same time as its Arabic members imposed trade restrictions on nations aligned with Israel following the Yom Kippur conflict. Two effects of this were to increase the flow of Eurodollar reserves to OPEC nations and increase the profits of domestic US oil corporations. As Harvey (2003) observes, although the rise in oil prices put pressure on other areas of the US economy, its negative effect on its rival economies was much greater, and there is evidence that the Nixon administration, along with other elite capital interests in oil and banking, negotiated a petrodollar regime with Saudi Arabia that would help stabilise demand for the US dollar (see Engdahl 2004; Coppes, 2007; Marshall, 2007).
After a 1973 meeting of the private Bilderberg forum, it appears that the US undertook to sell Saudi Arabia weapons systems, provide it with strategic military protection, and support its economic development. In return, Saudi Arabia agreed to formally require all its oil payments to be made in US dollars (a requirement other OPEC members adopted) and recycle these petrodollars by purchasing US Treasury bonds through the Federal Reserve (Emerson, 1985; Coppes, 2007). Consequently, billions of petrodollars began to be recycled back into the US financial system. Coppes notes that 70% of OPEC revenue was reinvested overseas by major banks in New York and London, notably in the form of loans to developing countries, fuelling the debt crises in the 1980s. As Coppes (2007) observes, when the Federal Reserve raised its interest rates in 1979 many developing countries with significant debts in US dollars found themselves in the double-bind of increasing oil prices and increasing interest obligations. A series of debt crises were precipitated during the 1980s (notably in Argentina, Brazil and Mexico), and the IMF used the ensuing bail-outs to pressure beneficiary countries to adopt neoliberal/monetarist policies. As Chossudovsky (1999) and Pilger (2002) have pointed out, the IMF has consistently championed a neoliberal agenda. Loans are issued on the basis of stringent conditionalities, usually entailing a ‘structural adjustment programme’ (SAP) prioritising free capital flows and the stabilisation of exchange rates while cutting government spending and privatising state assets. In effect, this meant macroeconomic decisions become insulated from democratic accountability.
During the 1990s, currency crises in Thailand, Malaysia, Indonesia (and subsequently, Russia) again led governments to approach the IMF to prevent debt default or economic collapse. There is certainly evidence to demonstrate the social impact of economic crises that extend beyond any direct financial consequences on the actors involved. In the case of Thailand, the economic fundamentals were not notably weaker than many other emerging economies which suffered no crisis (Wade & Veneroso, 1998; Best, 2005), but an unstable political environment led to market uncertainty. The IMF had concerns about the economic slow-down and debt-levels, but decided not to issue warnings because of concerns that this would affect market confidence and trigger a crisis as a self-fulfilling prophecy (Fischer, 2006). However, currency speculators and hedge funds correctly anticipated that the That reserve bank would have insufficient reserves to defend the baht’s fixed peg to the US dollar against heavy volumes of selling (see Bird, 2007; Rajan, 2007). High levels of short-selling increased the financial markets’ expectations that the currency would collapse. Once the Thai central bank had depleted its foreign reserves, it abandoned the dollar-peg on 2 July 1997, allowing the baht to ‘float’ freely. As Graham et al. (2000) have documented, the international money market reaction drove down the baht’s value by 20% overnight, generating huge profits for the speculators By the end of 1997, the baht was trading at less than half its previous pegged value to the US dollar (from 25:1 to 57:1 by January 1998) while the index of the Thai stock exchange (SET) had also fallen by 55% (373 compared with 873 the previous January). The financial impact on Thailand soon extended into the polity and lifeworld: World Bank monitoring reports (1999, 2000) on the social conditions in Thailand before and after the crisis reveal the following statistical increases in social indicators between 1996 and 1998 (the years either side of the main crisis): unemployment levels increased by 150%, rural poverty levels increased by 13%, urban poverty levels increased by 25%, drug-related arrests increased by 31%, abandoned newborns increased by 20%, orphanage admissions increased by 22%, outpatient treatments for depression increased by 52%, and suicides increased by 41%. Meanwhile, the aftermath of the baht’s loss of value saw an increase in inflation from 4.4% in 1997 to 10.2% in 1998. Over the same 12 months following the crisis, government expenditure on education declined by 9% while the public health spending declined by 15.2%. These figures demonstrate that the consequences of
financial crises extend well beyond the agents directly involved in financial speculation and can have a direct and deleterious impact on the lives of ordinary people oblivious to their exposure to global financial risks.
Harvey (2003) notes that Asian countries with stronger capital controls like Taiwan and Singapore were not as badly affected by the crisis suggests that during the 1990s, the growing interlinkage of financial markets across the world and the network of relations between the state and finance (both on a national and supranational level), together with the negotiation of a ‘new financial architecture’ have formalised inter-institutional commitments to a neoliberal, monetarist macroeconomic policy model. Harvey suggests this has allowed an alignment of Wall Street, US Treasury and IMF agendas to emerge as an elite ‘complex’ of political-economic interests capable of shaping global market conditions through a combination of financial and regulatory power (see also Wade and Veneroso, 1998; Best, 2005; Sassen, 2006). Wade (2007) has similarly identified the formation of a US-led ‘standards-surveillance-compliance’ complex comprised of finance ministers of the G20 countries, the IMF, the Basel Banking Committee (under the BIS), the Financial Stability Forum (itself comprising G7 finance ministers and central bankers, representatives of the BIS, IMF and World Bank, as well as private sector financial bodies). These institutional networks have underpinned the ‘new financial architecture’, notably in the form of the successive Basel accords82 which were intended to stabilise global markets and control risk in the wake of the SE Asian currency crisis, and more recently, the credit crunch.. As Wade (2007) points out, compliance with such financial governance regimes is typically easier and cheaper for the banks operating in more developed economies (e.g. lower capital reserves for lending are permitted if a bank deploys sophisticated risk-assessment systems). Wade suggests that such measures confer advantages upon financial institutions adopting Anglo-American financial systems and standards as the norm while systematically penalising those which do not- or cannot- conform. In regard to the theoretical framework being developed in this thesis, the Basel agreements can be understood as the utilisation of a supranational forum to extend a preferred set of intersubjective codifications demarcating the channels and modes of financial disclosure/ accounting calculus and legitimate investment/ banking practices. Control over these codes and norms therefore confers a structural advantage on elite financial institutions. As Wade observes,
‘Efforts at surveillance on the part of the wealthy countries, the IMF and World Bank should not be understood as a mere supplement to previous efforts at market liberalisation. The drive for ‘transparency’ involves not so much ‘removing the veil’ as a massive programme of standardisation around one type of capitalism, thereby reinforcing and legitimizing the power of the G7 states and multilateral organizations to intensify and stabilise financial liberalization’ (2007, p. 127).
Best (2005) has provided an important critique of financial transparency regimes, particularly the ‘new financial architecture’ such as the aforementioned Basel accords. Since the macroeconomic shift to monetarism and the prioritisation of free flows of capital, governance regimes have tended to emphasise the central importance of informational disclosure in order to reduce shocks and manage risk attributable to market uncertainty/ambiguity. However, underpinning such systems is a positivist conception of market ontology which assumes that resolving ambiguity is primarily a ‘technical’ matter of disclosing all relevant information to investors. Under the neoclassical conception of market efficiency (Fama, 1970; see also Shleifer, 2000) prices are always a rational expression of the information available, so the more information that is made available, the more prices will accurately correspond to real values. As Bryan & Rafferty (2006) note, this implicitly assumes that where information is fully disclosed, prices will reflect fundamentals and any discrepancies will immediately be resolved by investors seeking to exploit arbitrage opportunities.
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The Basel Accord established under the Bank of International Settlements (the international governance forum for central banks) and backed by the G10 group of nations, setting out minimum capital reserve requirements to manage credit risk. The 2004 Basle II accord (updated in 2006) established a more exacting set of global standards for managing credit risk in the banking sector, including minimum capital reserves, supervisory systems, and measures to impose market discipline (BIS 2006). Ironically, this did not prevent the recent credit crunch and banking crisis. Basel III is currently under negotiation but includes proposals for increased capital reserve requirements for banks.
However, if the measures intended to render markets transparent or regulate risks do not recognise the intersubjective, constructed nature of finance (including the potential for investors to circumvent regulatory restrictions and exploit loopholes) then they are unlikely to achieve the intended outcomes.
Following Harvey (2003), Best (2005) and Wade (2007), the reason the codifications underpinning Anglo-American systems of financial governance (notably on financial disclosure practices) have been so widely adopted stems from the opportunity for institutions in peripheral economies not engaging with the global financial system and its core institutions and systems. This is not just a matter of the dominant institutions controlling greater wealth; it is their control over the very definitions and schemata of economic reality such that these come to have hegemonic status. The demarcation of the legitimate channels and modalities of financial action involves power-relations, most notably access to the nodes and channels which determine financial values (including definition of the criteria that drive them). Thus the IMF’s imposition of structural adjustment programmes and macroeconomic conditionalities in return for loans, the Basel Accord’s designations of minimum capital requirements and disclosure obligations for bank lending, or the ratings agencies’ criteria for awarding investment-grade ratings all entail the extension of a particular set of financial codifications onto industry, government, and lifeworld.