Blowback, Second Edition: The Costs and Consequences of American Empire

Capital flows to developing nations in Asia and Latin America jumped from about $50 billion a year before the end of the Cold War to $300 billion a year by the mid-1990s. From 1992 to 1996, Indonesia, Malaysia, Thailand, and the Philippines experienced money and credit growth rates of 25 percent to 30 percent a year. During this same period South Korea, Thailand, and Indonesia invested nearly 40 percent of their gross domestic product in new productive capacity as well as in hotels and office buildings; the comparable figure for European nations was only 20 percent and even less for the United States. In 1996, Asia was the destination for half of all global foreign investment, European and Japanese as well as American. On the American side, by 1997 Citibank held about $22 billion in local currency loans in East Asia, about $20 billion in securities, and $8 billion in dollar loans; Morgan Bank had $19 billion in Asian securities and $6 billion in dollar loans; and Chase had $4 billion in local currency loans, $15 billion in Asian securities, and $6 billion in dollar loans.⁸

Although they did not speak out at the time, a number of famous financiers and economists have since pointed out the dangers of what is called “hot money” or “gypsy capital.” George Soros, one of the world’s richest financiers and head of a large “hedge fund” located in the Netherlands Antilles, asserted that “financial markets, far from tending toward equilibrium, are inherently unstable,” and he warned against the folly of continuing down the path of deregulating the financial services industry.⁹ Jagdish Bhagwati, one of free trade’s most passionate supporters and a former adviser to the director-general of the General Agreement on Tariffs and Trade, argued that the idea of free trade had been “hijacked by the proponents of capital mobility.” He claimed that there was a new “Wall Street–Treasury complex,” comparable to the military-industrial complex, which contributes little to the global economy but profits enormously from pretending that it does. The East Asian economies did not really need hot money from abroad, since in most cases they saved enough themselves to finance their own growth. Bhagwati has also pointed out that an unregulated financial system can with relative ease become divorced from the productive system it is supposed to serve and so be unnaturally predisposed to “panics and manias.”¹⁰

There was as well a less financial ingredient in the disaster-in-the-making. Without particularly thinking about it or sponsoring any public debate on the subject, the U.S. government built its future global policies on the main military elements of its Cold War policies. It expanded NATO to include the former Soviet satellites of the Czech Republic, Hungary, and Poland; it reinforced its East Asian alliances; and it committed itself to ensuring access to Persian Gulf oil for itself and its allies. The Gulf War of 1991 was the first demonstration of this commitment. Eschewing a “peace dividend,” which it might have directed toward its own industrial and social infrastructure, the United States also kept its Cold War–sized defense budgets in the $270 billion range while seeking to reorient its military focus from the possibility of war with a more or less equivalent enemy to imperial policing chores everywhere on earth.

With hegemony established on military terms and the American public more or less unaware of what its government was doing, government officials, economic theorists, and members of the Wall Street–Treasury complex launched an astonishingly ambitious, even megalomaniacal attempt to make the rest of the world adopt American economic institutions and norms. One could argue that the project reflected the last great expression of eighteenth-century Enlightenment rationalism, as idealistic and utopian as the paradise of pure communism that Marx envisioned; or one could conclude that having defeated the Fascists and the Communists, the United States now sought to defeat its last remaining rivals for global dominance: the nations of East Asia that had used the conditions of the Cold War to enrich themselves. In the latter view, U.S. interests lay not in globalization but in bringing increasingly self-confident competitors to their knees.

In any event, buoyed by what the apologist for America Francis Fukuyama has called the “end of history”—the belief that with the end of the Cold War all alternatives to the American economic system had been discredited—American leaders became hubristic. Although there is no evidence that Washington hatched a conspiracy to extend the scope of its global hegemony, a sense of moral superiority on the part of some and of opportunism on the part of others more than sufficed to create a similar effect.