Dane Carlton

Cleaver Eco 357L

“Imperial Decline and International Disorder: An Illustration from the Debt Crisis”, Arthur MacEwan

Main Point

The purpose of this article is to describe the way the debt crisis has evolved out of a larger crisis and thereby illustrate the way in which that larger and more fundamental crisis has its particular manifestations. The larger crisis can best be defined as the breakdown of the basic arrangements by which stability was maintained in the international economic affairs of capitalist nations during the quarter century following World War II. This larger crisis can be defined as a crisis of imperial decline and is important because it is the central issue of international affairs in the current period. This is a crisis that has existed for several years and is likely to continue for some time.

Summary

Section I

In this section of the article, the author describes the nature of United States imperial power in the post-World War II era and ways in which the situation has changed. Mr. MacEwan believes the debt crisis has a dual set of causes, but he will deal only with the events that have developed in the center. Not long ago, the U.S. government and business bases in the United States held a joint position of unchallenged dominance within the capitalist world. During this time (roughly, the 25 years following the second world war) the government established military alliances around the world, organized central institutions of economic affairs, and pressured governments to adopt correct policies and to be hospitable to United States business. This period is often referred to as the era of United States hegemony. Most people tend to agree that the great strength of the United States government and of business in international affairs provided one of the central pillars of the very rapid economic advance in capitalist nations during the quarter century following WWII. The flow of goods, capital, and technology across international boundaries proved to be a strong stimulus to economic growth, as well.

Section II

Mr. MacEwan argues that the origins of the debt crisis lie in the emergence of the crisis of imperial decline. As United States power began to fade in the 1960s, a set of events were set in motion that led to a new role for banking and debt in the international economy. During the 60s, the holdings of dollars overseas grew at a rate of roughly $2 billion dollars per year. Because of this, the structure of the monetary system became increasingly unstable. The fear, of course, was that as the supply of dollars continued to rise as a result of growing U.S. spending abroad, the demand for dollars would continue to lag behind, and ultimately the value of the dollar would have to fall relative to other currencies. By the early 70s, it was clear that the situation could no longer be sustained. The U.S. government then eliminated the convertibility of dollars for gold and placed a 10% surcharge on imports, effectively devaluing the dollar and drastically altering international monetary arrangements. The BrettonWoods system was thoroughly crippled by these events and was formally terminated in 1973. In spite of the changes that took place in the international monetary system in the early 70s, the growing supply of dollars continued to move overseas. As the crisis evolved and relative stagnation set in, United States government deficits and monetary expansion continued to fuel the fires of international inflation and liquidity expansion.

Section III

In this section, Mr. MacEwan continues the story by describing how international investment processes were affected by the disorder and disarray that characterized imperial weakness in the 70s. The outcome, of course, is the full blown appearance of the debt crisis in the 1980s. The developments of the 1970s led to great changes in the practices of United States banks. United States banks did not participate very much in the early post-WWII expansion of U.S. business abroad. Their foreign operations grew relatively slow until the mid-60s. United States banks decided to go abroad to join in the profits to be made from unregulated Eurocurrency operations. Without well established foreign operations, United States banks would surely lose some of the foreign business of their United States-based customers to foreign rivals. Composite figures for the ten largest United States banks in the 6 years leading up to the recognition of the debt crisis reveals a striking reliance on foreign source earnings: those banks obtained, on average, 48% of their earnings from international operations. The expansion of the Eurocurrency Market and the growth of United States-based international banking created a new era of competition among banks. With the greatly increased base from which to make loans and without regulation, banks began to scramble to find new customers who would borrow these funds. In the 70s, as instability of the advanced economies began to be widely apparent, the factors that provided the basis for the debt crisis of the 1980s had been well established: “the operation of a relatively unregulated international financial system; the full scale entrance of United States banks into international operations; rising competition in international banking; and slow economic growth in the advanced capitalist nations”.