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The hegemonic decline of the United States and the eastward shift in the global capitalist economy

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Abstract

The Great Recession of 2007-8 has exposed the inherent weakness of the Western economies, whose growth had been fuelled on heavy indebtedness. This dissertation intends to broach the implications of the Great Recession of 2007-8 by applying the theoretical concepts related to the notion of hegemony in order to determine to what extent there is a geopolitical shift in favour of China, pursuant to the decline of the United States. The dissertation also utilizes the theory of economic crisis in order to ascertain the implications of the Great Recession and corroborate the idea of a hegemonic shift to the East.

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Objectives

The dissertation seeks to intervene in a central debate of our times in the field of Political Economy of International Relations: the possible decline of United States’ “hegemony” and a possible shift of hegemony towards East Asia, especially China, given East Asia’s growing role in the world economy. This trend has exacerbated since the onset of the Great Recession of 2007-8. Using the theoretical framework of hegemony, I intend to find out to which extent the universalisation of the economic superstructure renders the notion of American hegemony obsolete. A Marxian model of interpretation can potentially shed light into the reasons which China, with competitive advantages that vastly exceed those of the United States will continue to accumulate power and establish itself as the new hegemon.

Research questions

What is the best way to conceptualise hegemony at the international level in the context of the Great Recession of 2007-8?

What elements have to be analysed in order to assess hegemony shifts in Capitalist Global Political EconomyHow does this apply to the crisis 2007-2008?

What are the signs that American power decliningWhat are the potential implications of that decline?

Did the Great Recession of 2007-8 create an irretrievable hegemonic shift towards the Pacific?

Theoretical framework

The dissertation is divided into two parts. The first is theoretical and discusses the notion of hegemony at the international level. The second part elaborates on the theory of crises. The way in which hegemony has been conceptualised by influential authors such as Arrighi, Cox, Organski and Kindleberger is critically examined. In particular, the dissertation proposes a re-reading of Gramsci stressing the role of nation states and both elements, coercion and consensus, in the exercise of hegemony. Concerning crises, the dissertation seeks to elaborate an integral and organic theory of economic crises based on Marx, contrasting the latter with recently developed neo-Marxist perspectives, such as the ones espoused by David Harvey and Ernest Mandel.

Methodology

The method for tackling this dissertation will involve a theoretical treatment of hegemony and the causes of economic crisis. Within that particular methodological framework, I intend to analyse the Great Recession of 2007-8 and its implications for the shift taking place, with the transfer of hegemonic power from the United States to China. Chapter one will be a treatment of the theoretical sources dealing with the notion of ‘hegemony’, as applied to shifts in the international political system. Chapter two deals with the nature of economic crises and long economic cycles, as applied to the hegemonic shift taking place. Chapter three will examine the hegemonic shift taking place as a result of the Great Recession of 2007-8 and how the next long cycle could favour the transition from a US-dominated system to a Chinese-dominated one. I intend to use primary sources which will corroborate the economic and political decline of the United States as well as the rise of China, and analyse my findings through the prism of the Great Recession of 2007-8. I will also utilise theoretical material (as outlined above) in order to examine to what extent there is a hegemonic shift taking place within the context of the ongoing economic crisis of the United States and the West.

Literature review

Robert Cox uses the Gramscian notion of hegemony in order to expose the structures which arise from shifts in the organisation of the international economy. These structures are kept through consensual and coercive power relations. These power relations are marked by ideological practices which give it an aura of normality, therefore establishing a particular cultural hegemony. Significantly, Cox argued that although specific states may be the bearers of hegemony, at its most fundamental level the term relates to the rooting of a set of elites in different countries that acknowledge certain essential principle on the international economy (Cox in Gill, S. (Ed.), 1993: 42). According to Arrighi, hegemony becomes the added power that a dominant class has as a result of being able to universalise the issues which are capable of leading to conflict (Arrighi in Gill, S. (Ed.), 1993: 148). A state capable of exercising hegemony if it is able to lead the international political system in a particular direction and it is perceived by other states as pursuing the interests of the international community. However, the dominant state could also be interested in leading other countries into their own way of economic development (Arrighi, 1990: 367). Arrighi argues that the competition for resources that promoted the capitalist expansion of the European economy into the wider world is structural rather than conjunctural. Its strength resides in the ability to provoke creative destructions motivated by economic crises, giving rise to the technological breakthroughs that have sustained the process of globalisation (Arrighi, 1998: 128).

Organski describes the rise of a hegemonic order in a situation in which powerful nations as well as middle and minor powers accept the given distribution of power and wealth and adhere to the same guidelines when it comes to diplomacy and commerce (Organski, 1969: 354). The international order that arises achieves its legitimacy through the ideology which underpins the ‘power differentials’ between the different states. When a power shift occurs, it may be accompanied by conflict amongst the great powers. This would very much depend on whether the challenger seeks to overhaul the rules of the game in the international political system (Organski, 1969: 354). Gilpin operates with a more deterministic notion of hegemonic cycles, positing that the resolution of a hegemonic war represents the start of another period of growth and eventual decline of a great power (Gilpin, 1981: 210). Kindleberger argues that the need to have a hegemon stems from the idea that only a dominant power can provide collective goods. He maintains that the main danger that the international political faces is not the existence of too much power accumulated in one single hegemon but the presence of too many free riding states unwilling to exercise authority (Kindleberger, 1981: 253).

Gramsci re-examines the Marxian model by positing that the cultural and political ‘base’ of a particular society is necessarily informed by the economic superstructure. The base includes categories such as the legal system, the prevailing ideology, the political make-up of the state and the cultural values of society. These categories are not involved in the production of goods but legitimate the ways in which the productive forces shape society: through surplus value extraction. Gramsci finds that the power of the dominant class goes far beyond the competencies of the state as it extends to the civil society, via institutions like schools, the press and cultural practices. The dominant class maintains hegemony by coopting the civil society, which is imbued with a particular ideology which ensures that the political status quo remains anchored in society and that it legitimates the way the productive forces operate (Holub, 1992: 103).

Marx attributed the emergence of economic crises to the tendency of the rate of profit to fall (Marx, 1863). The requirement to provide the workforce with survival wages put limits on the exchange value of the labour capacity. This limits the surplus labour time and surplus value needed for the accumulation of profits. There is a requirement that capital be transformed in consumption, therefore placing another burden on the process of production. Limitations on the production of use value by the requirement to create exchange value and the requisite of private profit before the satisfaction of social needs means that there will be overproduction. Capitalism attempts to create the conditions to resolve the inner contradictions of capitalism, such as the creation of a credit system. However, according to Marxist theory, crises are temporarily resolved until a higher level of economic crisis is attained (McCarthy, 1990: 240).

One of the ideas which Harvey puts forward in relation to the rise of neoliberal forms of globalisation is the policy of ‘accumulation by dispossession’, resulting in the centralisation of economic wealth and political power in the hands of a very reduced number of people through policies of dispossession. These policies imply stripping the publics of access to wealth. More precisely, ‘accumulation by dispossession’ entails the practice of financialisation, privatisation, upward state redistribution and the manipulation of crises. Harvey’s work is notably linked in an indirect manner to the ideas postulated by prominent public intellectuals of the Left such as Naomi Klein and Noam Chomsky, who also highlight the symbiosis between accumulation (upwards) and dispossession (downwards). These ideas seem to hark back to the classical Marxian template of a dialectic between the owners of the means of production and those who sell their labour at a fraction of its cost, living permanently in the ‘realm of necessity’ (Harvey, 2005).

Mandel maintains the base/superstructure Gramscian symbiosis in its analysis of hegemonic relations in the post-World War Two era, claiming that it ushered in a ‘long-wave’ economic cycle of growth. The working class had been weakened by the effects of Fascism, which focused on the cooperation of the different social classes, and World War Two. Technology had increased the rate of profit, which produced impressive economic growth and accumulation of capital. Drawing on Gramsci, Mandel claims that it is impossible for the working class to capture civil society from a ‘war of position’ as this would lead to reformism instead of creating true change. Any attempt to seize the control of society must be done using a ‘war of maneouvre’. The working class, as a subject of social change, is not capable to capture society in a hegemonic way, as it has always been economically and culturally disenfranchised. Any revolutionary process of change must be decisively quick. A drawn-out conflict would inevitably lead to an accommodation with the bourgeoisie (Mandel, 1995: 28).

The theory of economic crisis is linked to the notion of ‘hegemony’ in its political aspects. Transformations taking place in the international economy, particularly those of the magnitude of the Great Recession of 2007-8, have the potential to create a fracture in the hegemonic order constituted after the end of the Cold War. To be sure, there is a process of political and economic convergence which arises out of the increased level of interconnectedness amongst states. This process of harmonisation has been marshalled by the marriage between democracy and the free market orientation typical of the American political personality which emerged amidst the triumphalist furore of the early 1990s (Fukuyama, 1992: 338). This emerging geostrategic situation steered the hegemonic path taken by the United States towards an expansion of its political personality to the wider world. The Great Recession of 2007-8 created a situation in which the tenets which sustained that hegemony have been broken. China and the ‘Rest’ (i.e., the non-Western world) have been growing at a healthy rate whilst the West is still mired in an economic crisis which does not seem to have an end. This dissertation will endeavour to united both theoretical frameworks in order to determine to what extent the economic crisis will induce a change of hegemonic order. The most crucial aspect to be analysed is whether China will be able to rework the notion of ‘hegemony’ (which is a Western concept) in order to emerge as a potential challenger to the American dominion over the international order. The Great Recession of 2007-8 will potentially undermine the American military capabilities, which is the main element to be considered in the analysis of a putative hegemonic shift in favour of China. In addition, China seems to be interested in propping up its military capabilities. However, its geopolitical emphasis seems to be on forging commercial links with the Rest, rather than launching a frontal hegemonic challenge against the United States (Jacques, 2009: 22).

Case study – The Great Recession of 2007-8

One of my research questions explores the possibility that the Great Recession of 2008 created a hegemonic shift towards the Pacific, specifically China. In some respects, the first stage of globalisation (1990-2008) was successful in creating an extensive network of international governance. The end of bipolarity gave rise to the ability to interconnect mankind by electronic means (personal computers, internet, fast processing of data). Globalisation has also created a uniformity of ideology amongst the nations, such as the concept of liberal democracy and free markets (Dilly, 1992: 59) Although some countries deviated from the norm of untrammelled capitalism after the localised financial crises of the 1990s (Russia, Argentina, etc), by and large there has been a trend towards ideological harmonisation, which also includes a growing concern for human rights. This is true for many countries, notably first world ones. The first stage of globalisation created an interdependence that internationalised production and consumption. Whilst the outsourcing of production created benefits for consumers, it also rendered nations incapable of protecting their resources, which are now shared with the rest of the world through its management by transnational economic interests, and managed their economy for the benefit of its populations. As Bobbitt argues, the market-state ushered in by globalisation has as its main purpose the maximisation of opportunities for its citizens instead of protecting their welfare (Bobbitt, 2002: 347). Since economic considerations have overtaken political ones, the increase rate of capitalist profit in the East means that China will continue to accumulate power due to its strategic competitive advantages, lower wages, a young labour force and a huge internal market.

The challenges posed by the Great Recession exceed the capacity of individual states to be able to defend themselves. There is no nation, in the incipient stage of globalisation, which can act as steward and caretaker of the system. For example, the total flow of capital in the derivative industries vastly exceeds the size of the major economies of the world like the United States, the European Union and China ($531 tn as of September 2008). In addition, the first state of globalisation was chaotic, horizontal and disorderly. Globalisation brought in many positive elements for the world population, but also created many negative offshoots, which territorial states cannot possibly tackle on their own. The effects of global warming and natural resources degradation, the spread of disease, nuclear proliferation, humanitarian catastrophes and the threat of terrorism has one the one hand exposed the vulnerability of nation-states and created the need for common global action by supranational institutions that significantly erode their political sovereignty (Basch, L. et al, 1993: 67) The imperial overstrech that the United States suffers from has resulted in the accumulation of massive debts, which now total more than 100% of its GDP. In addition, its economy is about to be overtaken by China, which is still growing at very high rates (Jacques, 2009: 139).

The second stage of globalisation will result in the erosion of hegemonic power of the United States. The Great Recession of 2008 provides an opportunity to recreate the global financial and economic structure as well as create more centralised supranational governance, as seen in the rise of the G20. One of the ways in which the crisis keeps melting down the political sovereignty of the nation-states is seen in the depreciation of the US dollar (the international reserve currency) due to the indiscriminate printing of money (Jansson, 2001: 44). One of the ways in which the second stage of globalisation could bring in a world-state is through the creation of currency harmonisation, possibly based on special drawing rights. The increased indebtedness of nations also harmonises the system towards a world-state, since the nation-state has to rely on a debt-based economy. The socialisation of banking losses through taxpayers’ dollars is also another variable to be reckoned with. The increased fragility of the system at local level creates greater opportunity for extra-national and supranational intervention. To be sure, the role of the nation-state has not gone away. However, their role is subordinated to the requirements of this increasingly emerging extraterritorial financial and economic structure. The reaction to this emerging harmonisation towards a world-state is already being seen in the different arrangements made between BRICS nations and commodity-rich countries seeking to replace the dollar as a medium of exchange (Suominen, 2012: 33) In turn, this will end up hurting the most powerful sovereign nation, which will find it increasingly difficult to maintain military hegemony without the ability to print out as many dollars as it needs. The erosion of political sovereignty as a result of the Great Recession of 2008 and the reaction to it by the ‘Second World’ goes hand in hand with the idea of privatisation of economic power, managed at supranational and extraterritorial level by powerful private concerns (Khanna, 2008: 41). These supranational concerns are in the process of setting up their own regulatory schemes, imposed on individual territorial states, which are finding it increasingly difficult to resist them. My preliminary findings show that the realignment of economic international systems is the main conduit by which harmonisation leading to an hegemonic shift in favour of China will be activated. In addition, there is a definite reaction by what I would call the Shanghai Cooperation Organisation bloc (notably China and Russia, but also the likes of India and Iran). The harmonisation process is proceeding apace in the West. This reaction in the Second World is generating its own kind of harmonisation. The political sovereignty of nations could also be further impaired by the conflict that will arise as a result of it. Trying to eliminate the logic of anarchy brings with it the possibility of conflict. As Schmitt put it, the political cannot exist outside the realm of conflict. It is expected that the United States will not let China accumulate the necessary military capabilities in order to establish itself as the new hegemon.

Preliminary findings

There are several factors which enables us to think that a hegemonic transition is taking place. A massive, imposing display of Chinese-constructed fighter aircraft and other military equipment was used to commemorate the 60th anniversary of communist China’s founding, on 1 October, 2009. At the same time, China’s space industry was rapidly burgeoning and continuing to develop. Along with the fact that the Chinese economy continued to expand during a global recession and a rising position on the world political stage, these technological advances indicate China’s movement towards the status of a world superpower. While the rest of the world struggled in 2009, the Chinese economy exemplified a remarkable flexibility in returning to significant growth. The Chinese government attributes this economic resilience to China’s blend of communism with capitalism, in contrast to the laissez-faire approach taken by the West (Guthrie, 1999: 122).

In early 2009, a migration of millions of workers from urban areas to rural locales resulted from the closure of factories that produced exports on the east coast and south coast of China. The steep price of fuel and food had put pressure on household budgets in 2008, and in order to halt inflation, stringent financial and credit policies were set in place. These policies caused the construction industry to dip, as well as a slump in the property market. In response, the Chinese government created a stimulus package in November 2008 that was worth 4 trillion yuan (about $586 billion). Approximately 50% of the stimulus package was set aside for improving infrastructure, such as railways and airports, primarily in rural regions, while a further 25% was designated for the Sichuan province, which had been severely affected by a May 2008 earthquake and was in need of rebuilding. Banks were ordered to increase lending, and the result was a 164% upsurge of loans in the first three quarters of 2009. This facilitated a rebound of the economy, which occurred far more quickly than in other countries. (Wright, 2010: 221). Additionally, the latter part of the year saw the recovery of exports, which set China up to overtake Germany as the top exporter world-wide. As a result, speculation grew as to whether China could reclaim the dominant position that it once held prior to the early 1800s, at which time it provided roughly one third of manufacturing in the world, compared to just 25% of manufacturing in the West. This outcome was rendered more probably by a trade deal with the Association of Southeast Asian Nations that transpired at the end of the year. As the world’s largest creditor, China had a symbiotic and mutually beneficial relationship with the U.S., the globe’s biggest debtor, that had become vital in the effort to rebalance the global economy. Zhou Xiaochuan, governor of the People’s Bank of China (PBOC) issued a statement on 23 March 2009 that called for an international currency that would replace the U.S. dollar as the primary global currency and would remain unattached to individual countries; he argued that this currency would have increased stability over time. The People’s Bank of China also proposed that Special Drawing Rights, which were designed in 1969 by the IMF for utilisation between international institutions and governments, might be employed on a wider scale and used as payment in international finance and trade transactions. This would reduce fluctuations in price and the risks associated with these fluctuations. The initiative was made again at the yearly Group of Eight (G-8) summit that took place in Italy in July 2009. Delegates from China, India, Brazil, Mexico, and South Africa (also known as the “Group of Five) were also invited to the summit, where China, along with India and Russia (a G-8 member) called for an overhaul of the global financial system and a halt to dollar domination. In the latter part of September 2009, the president of the World Bank, Robert Zoellick, cautioned that the U.S. dollar faced an increasing threat due to the rising force of both the euro and the Chinese yuan. At this juncture China had surpassed Japan as the main creditor of the U.S.; there were concerns coming from Beijing that the $800.5 billion value of U.S. Treasury securities, along with other assets that constituted 60% of China’s foreign-exchange reserves and 30% of foreign-exchange reserves globally, would be attenuated by American debt and decreasing confidence in the U.S. dollar. China presented a temporary solution, which was to resist purchasing U.S. Treasury stock and, more significantly, to advocate the utilisation of the yuan as a world currency. (Kim, 2010: 49).

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