Rashid A Mughal
WHAT is shaping international economic relationships today? It is the clutch of issues comprising the consequences of Soviet Communism’s collapse, German unification, disappearance of both the Soviet Union and Eastern Bloc, the EC’s Act 1992, the Maastricht Treaty and the politico-military economic crises in eastern (Balkan) Europe. East’s collapse played a major role in shaping the events that followed. In purely economic terms, the post-war world ended in the 1960s when the US went off the limited gold standard and devalued the dollar heavily. That was the end of the Bretton Woods (monetary) system. What exists now is a notional or non-system, sans discipline. An element of quasi discipline has been fortuitously found in the heavy indebtedness of America. Most of the big creditors are financial hostage to the health of US dollar and they have to keep it literally afloat at much cost to themselves.
The main economic story from the early 1970s when the dollar ceased to be Almighty, needs to be picked up. The US, even then was weighed down by the weight of leadership of the West. It saw three main challenges. Communism, the Third World which soon presented the painful oil shock and the need to manage its own economy in a brand new economic situation with the world economy being truly rudderless and system less. Communism was checkmated mainly in Vietnam though it required tremendous effort (political and financial). The oil prices crisis was neatly solved through (a) starting a North South dialogue in 1974 that was allowed to peter out after a few years (b) recycling of petrodollars that did not take much effort and time. The US, assisted by Britain, evolved a perfect strategy for managing the Third World and the result was what we saw as the no-nonsense ideology of free trade and magic of the marketplace represented by Thatcherism is Britain (1979) and Reaganomics in the US (1981).
The 1970s decade did not belong either to Thatcherites or Reaganauts. In the US, the American politics was more ambiguous under Nixon, Ford and Carter though the pattern hazily did point in the direction of Reagan. It was dominated by Vietnam War and inflation. American Far Right’s think-tanks were designing a master strategy to finally kill Communism and tackle the challenge from the Third World on the one hand and manage the allies in OECD and Atlantic Alliance, on the other. Anglo-American response to the perceived challenges and the outlines of their new strategy could be inferred from the conduct of Reagan Presidency. Managing of allies required the carrot of free trade and free markets while a padded stick (or call it arm twisting) was adopted to keep them in check. The US big threat of leaving Europe militarily vulnerable was always kept in reserve as other tools like interest rates, dollar values and US duties on imports from Europe (both as an incentive and punishment) were employed as were contracts in special places of American domination like Gulf Sheikhdoms.
As for the management of the Third World it was simple. The master strategy could be summed up in a short sentence, keep the beggars in their place. No doubt big loans to them for mostly economically unsound purposes were always available to them from either the World Bank or IMF or one of the multilateral agencies. The more non-productive the loan, the easier it was in coming. Pakistan’s case alone would be typical one. As far the New International Economic Order in 1970s was concerned, the West demonstratively yawned and the donors were told to come the next day when even lower grade officials told them to stop being vague and too general. “If you want anything, talk to us bilaterally, forget multilateral forums as you can get nothing at them”. That was the blunt message. Aid addiction for them was intended and was achieved.
It is facing the economic and monetary jungle at a time when the US may not be in a cooperative mood vis-à-vis them. Europeans and Japanese especially Japanese are the biggest creditors of the US. Thanks to the size of their hoards of American treasury paper and other instruments the Japanese and to a slightly smaller extent the Germans, French and other OECD creditors are being held to ransom by the US. How so? The US is the world’s largest market for all goods and services as well as capital. It is also a militarily supreme nation. The creditors cannot simply decide one day to call back their money, which had gone to finance America’s financial prodigality during the last 25 years. True the French and others have on the side, tried to be clever by trying to convert their dollar hoards into gold. But the Americans are no fools they have ensured that this sort of thing remained the exception rather than the rule. Any effort to cut and run (from the dollar) means they will end up holding worthless pieces of paper as too many withdrawals from dollar accounts would make the dollar sink into virtual nothingness. See the magic of the marketplace.
American can deny them their markets for goods and services. Traditional for that market that is a notable chunk in every major exporter’s earnings. A few want to disturb the established patters of export earnings and regular inflows of interest on past investments. In addition, there is the implied political threat of American hostility. Hence they are forced to carry on as the Americans wish. That is leadership in action. But, granting that it is hard to conceive any of the so-called friends and allies of America deliberately wanting to rock the boat of the international trade and monetary equilibrium can the present “Alice in wonderland” kind of non-system survive in the long run? It is too rickety and unfair to last. Free trade on its own is marking heavy weather just as American indebtedness can at some point. A blow up may occur after which a few will be willing to come up to invest in American paper.
Third World loans are an issue that can cause the Western world’s banking system’s crisis with its “knock on effects”, quite independently of Japan and EC, merits of their own trade and economic relations come upon a blank wall. The American leadership is intended to maintain: (a) American budget structure and standards of living (b) it wishes to earn all the advantageous positions in the Third World to ensure cheap imports (c) control over their decision making mainly to pre-empt America’s competitors by keeping them on as short a leash as physically possible and (d) keep American competitors in a frame of mind of thankful junior partners by keeping them also at as short a leash as decently feasible. The US intends to keep this system going. One does not know if Japan and EC would go along with this unless forced by some new developments where compromise might not be easy.
— The writer is former DG (Emigration) and consultant ILO, IOM.
