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

After the big investors had pulled their money out of East Asia and left the area in deep recession, they turned to Russia. They calculated that there was little or no risk in buying Russian state bonds paying 12 percent interest because the Western world would not let a former superpower armed with nuclear weapons default. But the situation was further gone in Russia than these investors imagined, and so, in August 1998, the Russians defaulted on the interest payments (they still owe foreign investors perhaps $200 billion). If Russia does not repay these loans, it will be the largest default in history. These developments so scared the finance capitalists that they started pulling their money in from all over the world, threatening even well-run economies that had implemented all the economists’ nostrums on how to get rich like the North Americans. The Brazilian economy was so destabilized that in mid-November 1998 the IMF had to put together a $42 billion “precautionary package” to shore it up. Needless to say, the IMF has also helped plunge millions of poor Brazilians deeper into poverty. In order to meet the IMF’s austerity requirements, the Brazilian government even had to cancel a $250 million pilot project to save the Amazon rain forest. The result was that other countries withdrew their matching funds for the Amazon, and the degradation of an area that contributes 20 percent of the globe’s fresh-water supply resumed.¹⁹

In speeches in Russia and East Asia during the second half of 1998, President Clinton warned the peoples of these areas not to “backslide” and urged them to open their nations even further to American-style laissez-faire capitalism. But he had lost his audience. By now his listeners understood that the cause of their misery could not also be its cure. Many remembered that the Great Depression started as a financial panic then made worse by deflationary policies similar to those prescribed by the IMF in 1997 and 1998 for East Asia, Russia, and Brazil. The result in the early 1930s was a general collapse of purchasing power. That has not happened so far this time, largely because the United States went on a consumption binge and provided virtually all growth in demand for the excess output of the world. Can American “shop till we drop” be sustained indefinitely? No one knows.

The economic crisis at the end of the century had its origins in an American project to open up and make over the economies of its satellites and dependencies in East Asia. Its purpose was both to diminish them as competitors and to assert the primacy of the United States as the globe’s hegemonic power. Superficially it can be said to have succeeded. The globalization campaign significantly reduced the economic power and capitalist independence of at least some of the United States’ “tiger” competitors—even if, as with Russia and Brazil, the crisis could not be kept within the bounds of East Asia. This was, from a rather narrow point of view, a major American imperial success.

Despite such immediate results, however, the campaign against Asian-style capitalism (and the possibility that America’s satellite states in the area might gain independent political clout as well) was ill-founded and included serious blowback consequences. The United States failed to acknowledge that East Asian success had depended to a considerable extent on preferential, Cold War–based exports to the American market. By cloaking its campaign in the rhetoric of market opening and deregulation instead of the need to reform outdated Cold War arrangements, the United States both destroyed the credibility of its economic ideology and betrayed its Cold War supporters. The impoverishment and humiliation of huge populations from Indonesia to South Korea was itself blowback enough, even if the blowback for the time being spared ordinary Americans. But if and when the stricken economies recover, they will almost certainly start to seek leadership elsewhere than from the United States. At a bare minimum, they will try to protect themselves from ever again being smothered by the American embrace. In short, by refusing to reform its Cold War structures and instead insisting that other peoples emulate the American way, the United States gave itself an unnecessary, possibly terminal case of imperial overstretch. Instead of forestalling global instability, it helped make such instability inevitable.