From Capitalism to Empire:

The Political Economy of the Third Millennium

Salvatore Babones

The University of Sydney, sbabones@sydney.edu.au

Prepared for the 2015 PEWS Conference, "Global Inequalities: Hegemonic Shifts and Regional Differentiations," Freie Universität Berlin

[FIRST DRAFT -- March 5, 2015] IROWS Working PAPER #90 irows.ucr.edu/papers/irows90/irows90.htm

ABSTRACT: The capitalist world-economy came to an end at the beginning of the third millennium. In the central logic of the global political economy, the answers to the two critical questions: who exploits? and how? have changed from the old answers "those with economic capital" and "through unequal exchange in politically-structured markets" to the new answers "those with political power" and "through unequal influence in economically-structured polities." Capitalism is no longer the dominant macro-systemic logic that governs the global political economy. The dominant macro-systemic logic that governs the contemporary global political economy is empire. September 11, 2001 is the symbolic but nonetheless meaningful date of the transition from the five hundred year capitalist world-economy to a new American-centered world-empire. The political structure of American world-empire is highly robust; American empire and its (ultimate) aftermath will be the dominant feature of the global political economy of the third millennium.

The five hundred year capitalist world-economy came to an end at the beginning of the third millennium, and with it the end of capitalism as such. Scholars will never agree on the definition of capitalism and thus will never be able to come to agreement on its end. The claim that capitalism has already ended is based on the simple (or even simplistic) proposition that capitalism is a system in which "those who possess economic capital exploit those who do not through unequal exchange in politically-structured markets." All of the sub-terms used in this definition are used within their ordinary English-language meanings, not in idiosyncratic Marxian or other academic senses. The focus here is on the market, which is also the focus of Wallerstein (1974b: 399), who characterizes the capitalist mode of production as "production for profit in a market" with the implication that this profit is typically extracted by the capitalist from laborers (even, or perhaps especially, when the labor "market" is not a market as such, as in plantation slavery). Marx himself focused on the capital-labor relationship as the main locus of capitalist exploitation. It is fairly basic Marxian thought to identify those who own the means of production as the exploiting capitalist class and those who do not own the means of production as the exploited laboring class.

Leaving aside finer academic questions (e.g., what is the class position of intellectual laborers?) it seems reasonable (to this author at least) to identify capitalism in broad terms as a system in which the primary social fact of existence is that those who own things exploit those who do not own things mainly through the labor "market," which is far from a free market but is instead consistently biased in favor of the employer against the employee. Government plays a key role in ensuring that the market is so biased. One might go so far as to say that in a capitalist system ensuring a pro-employer bias in labor relations is one of the primary functions of government, and that to the extent that governments do not perform this function they are resisting capitalism. Hall and Soskice (2001) may identify the "coordinated market economy" (CME) as a variety of capitalism but it is nonetheless probably more accurate to call coordinated resistance to capitalism, or "capitalism lite." In any case for five centuries from 1500-2000 the world-economy as a whole has been decidedly a "liberal market economy" (LME) even if particular countries within that system have sought to shield their citizens from the full impact of market forces. Wallerstein (1974b) anticipated this point by characterizing socialist countries as employee-owned firms operating in the larger capitalist world-economy; surely this holds all the more so for CMEs.

Capitalism and the capitalist world-economy passed from the scene when the global marketplace was endogenized by being subsumed within a single political entity. That political entity is a world-state (in Wallerstein's terminology, a "world-empire") that consists of a complex, interlocking system of state machinery centered on Washington, DC and the United States of America but also incorporating its four English-speaking allies: Australia, Canada, New Zealand, and the United Kingdom. These five countries are well-known to operate an integrated "five eyes" intelligence system but the integration of their state machineries goes far beyond intelligence gathering to include war-making, diplomacy, and economic policy coordination. As argued in Babones (2014), the four junior countries in this coalition cannot be considered fully sovereign states distinct from the state machinery of the United States: they have little effective autonomy in international relations (Fraser 2015) or even broad economic policy (Babones 2015). The state machineries of the NATO countries and the Pacific rim countries of Japan, South Korea, and Taiwan are similarly (though less pervasively) intermingled with that of the United States proper. Israel is a special case of interlacing state machinery. Various other countries have state institutions that are to some degree entangled with those of the United States. Few countries' state machineries are institutionally free of direct influence from Washington and all countries' state personnel are to some degree indoctrinated with American ideological precepts. A pro-American fifth column exists within the government of nearly every country in the world, with the possible exception of North Korea.

This Washington-centered world-state has existed in potential since the disintegration of the Soviet Union in 1991 but was not organized as such until after the traumatic events of September 11, 2001. In the wake of the September 11 terrorist attacks the United States government acted across the board to activate -- to make operational -- the full extent of its potential state machinery. The fight against terrorist groups and the wars in Afghanistan and Iraq are relatively minor activities compared to the full capabilities of the Washington-centered world-state. This world-state has the capacity to monitor most of the world's electronic communications, including encrypted communications; has in extremis access to nearly everyone's AOL, Apple, Facebook, Google, Microsoft, Skype, Twitter, and Yahoo accounts; arrogates to itself the authority to assassinate anyone it identifies as an enemy nearly anywhere in the world; rations access to the global financial system according to its political expediency; and indirectly shapes the ideologies of the world's elites through the influence of its state-sanctioned educational institutions. To be sure, there are poles of resistance. The point is that nearly all of the poles of resistance in the world are poles of resistance to this one overarching world-state.

Wallerstein (1974a, 1974b) and many others have long cherished the hope that a post-capitalist world-state would be a socialist world-state. To be absolutely clear: I share that desire. A socialist world-state is necessary for the peaceful solution of many serious threats that loom over the future of humanity: widespread poverty, nuclear devastation, ecological collapse, and all the other problems that have been proffered (in succession) as reasons why the capitalist world-system would collapse under its own contradictions to clear the way for global socialism and other utopias. To claim that socialism is the only viable solution to these threats is a valid theoretical proposition; to claim that socialism will thus arise is sheer teleology. Leaving aside the theoretical proposition, the teleology is clear. Even if it is true that socialism is the only viable path toward the survival of humanity that fact alone in no way implies that socialism will arise. Of course, neither does it imply that socialism will not arise. But it is difficult to see the harbingers of the arrival of global socialism on the horizon today.

The harbingers of the arrival of world-empire are plentiful. If a capitalist world-economy is a world-system in which "those who possess economic capital exploit those who do not through unequal exchange in politically-structured markets" then a post-capitalist world-empire might be defined as a world-system in which "those who possess political power exploit those who do not through unequal influence in economically-structured polities." In other words, the locus of exploitation shifts from markets (which capitalists have more power to shape than do their workers) to the polities (which politically-connected people have more power to shape than do people who are less well-connected). Whereas in a capitalist world-economy politically well-connected people use their political power to help ensure market outcomes in their favor, in a post-capitalist world-empire rich people use their money to help ensure political outcomes in their favor. If the archetypical way to make money in a capitalist world-economy is for a factory owner to influence the government to repress worker's organizations, the archetypical way to make money in a post-capitalist world-empire is for a factory owner to bribe government officials to hand out inflated no-bid contracts. The big money is no longer made by squeezing workers. The big money is made by acquiring sinecures.

This is not to say that workers are no longer squeezed or that sinecures did not exist under capitalism. But the routine, day-to-day accumulation of huge excess economic profits is not occurring on the factory floors (labor markets) or store checkouts (goods markets). Excess profit rates in most labor and goods markets are now modest (e.g., mass assembly work in China) or transitory (e.g., the latest must-have electronic device). The truly big, seemingly permanent excess profits are those that are derived directly from political favor. At the industry level this is reflected in the long-term super-profitability of the energy, defence, health, media, internet, and especially government outsourcing sectors. In finance it is reflected in the new dominance of private equity and hedge funds over financial intermediaries like banks, investment banks, and insurance companies. Within the firm it is reflected in the super-rewards of executives and directors at the expense of stockholders (the nominal capitalists). Obviously people with capital still earn greater rewards than people without capital, but money does not breed money in anything like the way claimed by Piketty (2014). Ordinary people's stock-invested retirement funds earn much lower returns than the private investments of the politically-connected.

The transition from American hegemony over a capitalist world-economy to American world-empire did not happen in a day, but September 11, 2001 is more than just a symbolic date. It was an inflection point. Many kinds of state action (especially American state action) that were not normatively accepted as legitimate by the leaderships of most of the other countries of the world before that date came to be normatively accepted by the leaderships of most of the other countries of the world as legitimate after that date. Max Weber (Weber 1958: 78) influentially defined the state as "the form of human community that (successfully) claims the monopoly of the legitimate use of physical force within a given territory." (emphasis in original) After September 11, 2001 the United States began to successfully claim the monopoly of the legitimate use of physical force throughout the entire world. Of course, other countries and entities still use physical force. But their use is (seemingly almost by definition) generally viewed as illegitimate: Sudan in Darfur, Russia in Ukraine, Islamic State in Syria and Iraq, etc. Moreover the United States does not use force alone. It extends its mantle of legitimacy over its allies. The United Kingdom and Australia go to war with the United States as a matter of course. French intervention in West Africa is legitimated by American approval.

Crucially: it is important to understand that the transition from American hegemony over a capitalist world-economy to American world-empire is has not yet been consolidated. It is less than three decades in the making. The slow pace of world-historical change makes it difficult to capture the moment of transition. All markets have not been endogenized under American world-empire, nor will they ever be. Just as political mechanisms of exploitation and surplus extraction continued to exist throughout the life of the capitalist world-economy despite the primacy of market forces, so too market mechanisms of exploitation and surplus extraction will continue to exist throughout the life of the American world-empire. Markets and market-based exploitation have existed in all world-empires. Markets are a mechanism for exploitation in world-empires, but an overarching market is not the primary mechanism of exploitation in a world-empire. To observe the expanding reality of American world-empire it is necessary to shift one's focus from the vestigial markets of capitalism to the emerging institutions that subdue markets to political control. Contra Hardt and Negri (2000) -- who obviously developed their perspective before 2001 -- these institutions do not constitute a generic, placeless "Empire" (capitalized in the original). They are part and parcel of American state power, with the American state broadly construed to include the multiple intertwined state machineries for which Washington is dominant capital.

Panitch and Gindin (2013) have missed the transition from hegemony to empire. Though they use the term "American empire" they use it to describe what has classically been understood as hegemony. Thus their American empire dates from the beginning of the twentieth century instead of arising in the twenty-first. Harvey's (2007) "new imperialism" centered on financial capitalism similarly dwells on hegemony past rather than empire future. Financial markets are enormous but they are no longer determinative. Robinson (2010) locates the new imperialism in class terms but also misses the passing of capitalism as such. Extraordinarily rich people in China (India, Russia, etc.) are not part of the world's ruling class until they leave China (India, Russia, etc.) to establish themselves in the imperial center. Since 2010, tens of thousands of Chinese millionaires have been acquiring foreign citizenships every year, and their citizenships of choice are American, Canadian, and Australian -- with a strong preference for American. Like rich, intelligent, and entrepreneurial people the world over they gravitate toward the English-speaking countries (the United States most of all) where they become members not of the transnational capitalist class but of the Anglo-American ruling elite. They send their children to Harvard, Oxford, and Cambridge to join this elite, to complete the transition from merely rich Klasse en sich to members of the actually ruling Klasse fuer sich.

Galtung (2009) perhaps sees American empire for what it is but makes the mistake of believing it to be unstable and thus transitory. The emerging empire is very stable. There is no "rising challenger" to American hegemony. In every region of the world potential challengers to American world-empire are neutralized by other regional powers without the need for the direct exercise of American power. Iran is neutralized by Israel and Saudi Arabia, acting in their own interests. Russia is neutralized by the countries of the European Union acting under a NATO umbrella. Even China is neutralized by Japan, Korea, Taiwan, Vietnam, and (yes) Russia -- for which China is the only country that poses a long-term existential threat to its territorial integrity. Moreover China's rate of economic growth is slowing down as it reaches middle-income status and China's population is in decline and rapidly aging. (Babones 2012) Meanwhile the only five developed countries that have growing populations are the five English-speaking allies that form the core of American world-empire. Perhaps not coincidentally, these are also the only five rich countries that have experienced substantial economic growth in the aftermath of the 2007-2009 global financial crisis. While the long-term prognosis for economic growth in the English-speaking countries is unknown the long-term prognosis for demographic growth in the English-speaking countries is unambiguously positive.

In the early decades of the twenty-first century there are five very rich countries with robust, growing populations that share a common language, a common military system, and a unified global spying operation. Their language is the world language, their business culture is the world business culture, their dominant ideologies are the world's dominant ideologies, and global elite migration is a one-way path into their citizenship. All of the world's former colonial powers are their close allies. This American world-empire -- a system of comingled state machinery centered on Washington but incorporating to various degrees the state machineries of nearly every country in the world -- clearly has the capacity to dictate the terms of trade on all major global markets, from crude oil (politically manipulated) to bitcoins (shut down). Its professed ideology of free trade may induce it to forbear dictating the terms of trade, but for how long? Has the 2014-2015 collapse in crude oil prices been dictated from Washington? It has certainly met Washington's myriad foreign and domestic policy objectives with eerie accuracy. In the 1970s the oil market could bring down a US government; in the 2000s the oil market is a tool of the US government.

But the manipulation of markets is not the essence of world-empire. The essence of world-empire is that markets are no longer determinative of global affairs; they are no longer "where the action is." In the 2010s, the real action in international economic treaty negotiations is not in trade or even in investment but in intellectual property. The Transatlantic Trade and Investment Partnership (TTIP), Trans-Pacific Partnership (TPP), and related treaties are US-sponsored mechanisms for imposing American intellectual property regimes on the world's major economies, with other countries (China in particular) allowed in only after the terms have been set in America's favor. Under American world-empire the "commanding heights" of the global economy are occupied by companies that control enforceable intellectual property rights, not by impersonal markets. The relevant capital itself -- intellectual "property" -- is a creature of government that can only exist by government fiat. And only one government's fiat matters: that of the United States government. China-specific intellectual property (let alone Ecuador-specific or Cambodia-specific intellectual property) is not a very desirable asset. Only intellectual property rights that are recognized by United States have effective global enforceability.

In the twenty-first century the companies that are able to make super-profits on a global scale are those that have globally enforceable (and enforced) rights to sell particular products under particular names. These constitute the true commanding heights of the contemporary global economy. This fact contradicts the basic premise of Wallerstein's (1974a) conceptualization of the capitalist world-economy, as outlined in the famous "theoretical reprise" to The Modern World-System I. There Wallerstein wrote that:

Capitalism has been able to flourish precisely because the world-economy has had within its bounds not one but a multiplicity of political systems. [... C]apitalism as an economic mode is based on the fact that the economic factors operate within an arena larger than that which any political entity can totally control. [Wallerstein 1974a: 348]

Since the beginning of the twenty-first century and increasingly with each decade that passes a single political entity -- a hybrid multinational and transnational state-machinery centered on but not limited to the US government in Washington, DC -- has endogenized the global marketplace. As a result, capitalism is no longer the dominant macro-systemic logic that governs the global political economy. The dominant macro-systemic logic that governs the contemporary global political economy is empire. That dominant logic trickles down to shape subsidiary logics inside countries and inside companies whereby unequal influence replaces unequal exchange as the characteristic mechanism for economic exploitation. The banker is replaced by the lobbyist; the killer trade is replaced by the sinecure. It may be difficult to observe these longue durée trends from within them but the shift from world-economy to world-empire will become clearer as the twenty-first century unfolds. Already it is no longer credible to claim that each successive economic crisis constitutes the final collapse of the capitalist system and that global socialism is just out of sight around the next corner. The world-system will not collapse because it is no longer capitalist. Capitalism has already ended, not with a bang but with a whimper.

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