Political Economy

 
 


“Free trade”: the dangerous game played by finance capital

Nick G.

The major capital-exporting (imperialist) nations are caught in a vortex of trade rivalries, and are using “free trade” agreements (FTAs) as weapons of trade warfare.  And rotating the fluid of trade rivalry are aggressive demands by speculative finance capital for newer and bigger opportunities for capital gains through arbitrage.

Both China and the US are pursuing their own respective FTAs.  The US has the Trans-Pacific Partnership; China is creating a Regional Comprehensive Economic Partnership (RCEP).  The US has a Transatlantic Trade and Investment Partnership (TTIP); China is somewhat more poetically pursuing its “one belt, one road” strategy designed to link Asia, Europe and Africa in a latter-day version of the Silk Road.  The US has the Trade in Services Agreement (TISA) which excludes Brazil, India, Russia and China (the so-called BRICs grouping). Both China and the US have bilateral FTAs with individual countries.

In his 1917 lecture on War and Revolution, Lenin approvingly quoted Clausewitz’s dictum that “War is a continuation of policy by other means”.  Lenin looked at the rivalry between the two capitalist giants, Britain and Germany, and showed how they, “…long before the war, had caught the whole world, all countries, in the net of financial exploitation and economically divided the globe up among themselves. They were bound to clash, because a redivision of this supremacy, from the point of view of capitalism, had become inevitable.”  

The ancient Chinese text by Sun Zi, The Art of War, has gained popularity in business and financial circles for some decades now, further exemplifying the links between military theory and business expansion.

Exclusion and agenda-setting

The purpose of the current spate of FTAs is not so much to include as many countries as possible as to exclude a major rival in particular.

Shintaro Hamanaka’s December 2014 paper for the Asian Development Bank, Trans-Pacific Partnership Versus Regional Comprehensive Economic Partnership: Control of Members and Agenda Setting presents a refreshingly honest analysis of how this FTA rivalry has taken shape.

“The exclusion of rival states is necessary for countries seeking to assume leadership”, he writes, referring to the exclusion of China from the US-led TPP, and the exclusion of the USA from the Chinese-led RCEP.

Alongside the exclusion process is control over agenda-setting.  Hamanaka states “…economies are playing two games simultaneously: control of membership and control of the agenda.  The core of the first game is the exclusion of rivals.  The essence of the second game is to set the agenda that is convenient to the leader. Neither comes before the other; both are determined at the stage of forming the institution or group.”

Control of the agenda allows the dominant FTA leader to allow its rival to join under very restrictive conditions of entry that may be more favourable for the US, say, in the case of the TTP, than China’s permanent exclusion. “…Incumbent leaders try to invite rivals as latecomers and put them in a relatively disadvantageous positon vis-à-vis incumbents,” writes Hamanaka.

Finance capital drives “trade” rivalry

When the pre-monopoly stage of capitalism ended and modern imperialism emerged as its highest stage, the power of industrial capital was increasingly restricted to the contradiction between wage labour and capital at the point of production and within national economic frameworks.  Greater power over international policy was grabbed by finance capital in all its various forms of interest-bearing institutions – banks, financial institutions, insurance corporations and the like.  Lenin spoke of the supremacy of finance capital over industrial capital. This supremacy threatened manufacturing where capital circulated through a money-commodity-more-money (M-C-M¹) process, by attracting available capital to a quicker and more profitable, albeit speculative, process of money-more-money (M-M¹).

That process emerged at the end of the 19th and beginning of the 20th centuries.  Such credit capital as was available to industrial production was applied behind the walls of nation-states for more than half a century. During this early stage of imperialism, capitalist trade wars took the form of erecting higher and higher tariff protections around national industry and agriculture and, particularly in the case of the latter, complementary and ever higher subsidies to producers within the nation.

Tariff barriers protected the industrial capital of a nation’s capitalists engaged in production of commodities.  As early as October 1926 finance capitalists from the US, Britain and other countries published a declaration calling for the removal of tariff barriers set up by the European states. This so-called bankers’ declaration was an attempt by Anglo-US finance capital to establish its hegemony in Europe.

In the later stage of imperialism, and especially from around 1970 onwards, finance capital renewed its attacks on national trade and investment barriers as a hindrance to its ability to penetrate other countries. A massive wave of deregulation of financial practices took place facilitating not just the international movement of finance capital but also its creation of sophisticated new vehicles for speculative activity.  A new vocabulary emerged: futures trades, derivatives, collateralised debt obligations; together with new forms of finance capital: hedge funds, private equity firms, margin traders; and new technologies allowing high frequency trades via computerised algorithmic searching of stock prices and currency trades.

The US banker Nasser Saber said of finance capital: “Unlike other forms of capital which are logically grown from, and are thus historically connected with, production, speculative capital is born from arbitrage trading.  It has no connection to either the production or circulation process of commodities and products.” 

Arbitrage trading basically means the near-simultaneous (down to nanoseconds in computerised high frequency trading) purchase and sale of an asset in order to profit from a difference in the price. It is just like the old-fashioned scalping of concert tickets except that the price difference can be minute yet still realise a huge profit given the quantity of assets being traded, and you don’t have to waste your own time standing out the front of a concert hoping for a sale.

Prior to the 1970s, the financing of trade was largely a matter of the non-speculative provision of finance to bankroll the buying of goods and services through letters of credit and bank guarantees.  Increases in trade volume indirectly increased the profitability of credit capital if larger volumes of credit capital were required to grease the trade wheels.  

After the 1970s, the financial returns from trade came from the faster and less costly creation of fictitious value through speculation on the rise and fall of commodity and resource prices and all  the other wonderful opportunities in the new world of derivatives and futures.

The domination of speculative imperialist finance capital over industrial and merchant capital led to a big new push for “free trade”, i.e. trade in which tariffs and subsidies are wound back or removed altogether so as to promote the volume of trade into which speculative capital focuses with the manic obsession of a problem gambler in the casino.

Trade and finance capital

Those people who have said that trade is not the main thing in FTAs, that rather, it is really all about guaranteeing investment rights for big corporations over nation-states, are right.

However, it goes beyond ISDS clauses and intellectual property provisions.

It is also about allowing the potentially most destructive form of capital to further inflate the balloon of fictitious values to the point where nobody will have the capacity to bailout the losers in the coming crashes.  The value of all this fictitious capital far exceeds the value of global GDP: according to Time magazine ()March 27, 2013), “While there’s no way of knowing for sure, estimates of the face value of all derivatives outstanding tops a quadrillion (1,000 trillion) dollars, or more than 14 times the entire world’s annual GDP.”   And despite the chaos it caused is 2007-08, the magnitude of this destructive capital has only grown. “The global derivatives bubble is now 20 percent bigger than it was just before the last great financial crisis struck in 2008.”  

That is why FTA manoeuvring is also about who will emerge from a major financial crisis in the least weak position.

This involves China as much as the US.  Events this year have shown that the Chinese stock market is as susceptible to manipulation and instability as any other. At the same time, the Chinese state responded with greater vigour than other capitalist governments may have.

Indeed the differences between the financial capacity of the US and Europeans on the one hand, and the Chinese (and other BRICs) on the other have echoes of Lenin’s description of the major rivals in the first imperialist world war: “On the one hand we have Britain, a country which owns the greater part of the globe, a country which ranks first in wealth…..On the other hand, opposed to this, mainly Anglo-French group, we have another group of capitalists, an even more rapacious, even more predatory one, a group who came to the capitalist banqueting table when all the seats were occupied, but who introduced into the struggle new methods for developing capitalist production, improved techniques, and superior organisation, which turned the old capitalism, the capitalism of the free-competition age, into the capitalism of giant trusts, syndicates, and cartels. This group introduced the beginnings of state-controlled capitalist production, combining the colossal power of capitalism with the colossal power of the state into a single mechanism and bringing tens of millions of people within the single organisation of state capitalism.” 

China is now a net exporter of capital. Between 2002 and 2013 there was a 40-fold increase in Chinese outward foreign direct investment .  Chinese investors channelled capital into 6,128 overseas firms in 156 countries in 2014, with outbound investment reaching $102.89 billion, up 14.1 percent from a year earlier, according to a Chinese source . The Chinese government is following a strategy of ensuring that the export of capital is developed alongside the export of goods and that China changes from being the “workshop of the world” to its global finance capital headquarters.

Will the US take these changes lying down?  Will it be content to restrict defence of its global domination to the use of policy and trade and investment agreements?  

We are living in an era which could see the vortex of trade rivalry draw the world once again into real war over whose finance capital is to really rule the world.  But this will lead to increased resistance and struggle by the people. 

Marx has proved right on so many matters.  It is timely to recall his conclusion to a speech on the question of free trade, delivered January 9, at the beginning of the revolutionary year of 1848: “In a word, the Free Trade system hastens the Social Revolution. In this revolutionary sense alone, gentlemen, I am in favour of Free Trade.”

 

 

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