Plots go far to explain how past glories degenerated into today's tribulations. Thus when in 1913 The Young Turks (or, more formally, the Committee of Union and Progress, CUP), deposed, the Ottoman sultan, Abdulhamit II this was explained as a Jewish Conspiracy which would have next inspire the Armenian Holocoast. While all evidence points to the Young Turks being primarily made up of Turkish-speaking, Muslims, even the British ambassador in Istanbul, Gerard Lowther, insisted that the movement was inspired and led by Jews and Freemasons. Middle Eastern Christians first picked up these European notions, then passed them along to Muslims. Already in May 1909, the Syrian Central Committee, a Paris-based Christian group favoring French rule in the Levant, wrote about Jewish and Masonic leadership of the Young Turks; the committee postulated Zionist efforts to destroy the Ottoman Empire in pursuit of a Jewish state in Palestine. Even today, fundamentalists hark back to the Jewish overthrow of Sultan Abdulhamit II as one of the key events in the decline of Islam in modern times and frequently cite it as a leading act of Jewish perfidy. They portray the Ottoman king as a staunch Muslim whom the Jews had to sideline if they were to take over in Palestine.

Yet similar is also claimed otherwise, Bulent Ecevit, the leftist Turkish leader, accused Washington of encouraging Armenians to make territorial demands on both Azerbaijan and Turkey. Why? Because "the United States is planning to give Armenia a role in the Caucasus similar to that played by Israel in the Middle East." (Paraphrased in Mohamed Heikal, The Sphinx and the Commudar: The Rise and Fall of Soviet Influence in the Middle East, New York, 1978, p. 186.)  Nakhichevan's President Haydar Aliyev, seeing Armenia as the U.S. base in the Caucasus, also drew the analogy to Israel. This embryonic parallel to the U.S.-Israel nexus suggests that Israel need not be unique in the Middle Eastern imagination; any non-Muslim can enter the same twilight of puppet and puppeteer. Some Young Turk thinkers had re-labeled Buddhism as proto-Islam in appreciation of the Japanese military success against Russia in 1905.

And another powerful example of appropriation was the Indian Muslim reaction to the death of Mustafa Kemal Ataturk. The event created immense excitement. Prayer meetings were held in all major mosques of the subcontinent, in some cases involving several hundreds of thousands of Muslims. But the Ataturk that Indians mourned and the Atatiirk who had emerged during the founding years of the Turkish republic had preciously little in common. The front page of Inqilab, a respectable, even high-brow paper, reported the following on 10 November 1938: shortly before his death Atatiirk briefly awoke from a coma and conveyed a message to his servant, which the latter was told to pass on to the 'Islamic Nation' (millat Islamiyya). Atatiirk is reported to have sighed 'Allah' and then passed out of consciousness.

This is hardly credible for a leader who died of the effects of life-long alcoholism, and endeavored to break the link between Turkish Islam and the world Muslim community. Thus it is remarkable how the Indo-Muslim account literally and shamelessly colonizes the Turkish historical experience for its own purpose. To make the case more clear, Sir Sikandar Hayat Khan, the Unionist Premier of the Punjab, declared in a public speech, that the Muslim Ataturk had been more successful in overcoming the world than Hitler and Mussolini (the most cherished non-Muslim Fascist icons), and that the Muslims of Lahore should not believe what the non-Muslim English language papers had to say about their hero's hostility towards religion. (Letter Diwan Chaman Lal to Acharya Ram 11 November 1938, quoted in NAI: File-Home Political- 28/18/38, Passport Dewan Chaman Lal. Activities of Chaman Lal, author of the prohibited book “The Vanishing Empire”.)

Other speakers and newspaper commentators noted maliciously that Hindu shops and offices had not responded to the general hartal, which the Muslims of Lahore had called to commemorate their Leader's death, adding to the general feeling that Ataturk belonged to the Muslim community, and to nobody else. There was, of course, again an element of symbolic transfer of power involved: both the enforcement and the defiance of the call for a close-down could produce states of empowerment that were in a way directly linked to the perceived power of their symbolic cause, Ataturk. 

 

The Economy of Transnational Liberalism

In Turkey during the early 1960’s then, the erosion of social welfare projects and the rise of money-capital’s power, as opposed to industrial-capital, coincided with the petro-dollar boom in the Middle East, especially in Saudi Arabia. Within that nexus, the class and ideological interests of the Saudi elite and that of the transnational liberalism mentioned in the previous chapter corresponded.

As explained however, it is important that we first present what could be said to be a postscript to our earlier part 1, and 2 excursion into Globalization, this time pointing to the development of modern economics as it also became to be of influence in Turkey.

For this we need to understand that the international political economy (IPE) literature generally identifies three successive international regimes that affected the economic and political relationships among nations before contemporary neo-liberalism’s free floating exchange rate system. The first regime is the international gold standard, which was a fixed exchange rate regime that pegged each national currency to a fixed gold value. This in turn determined the exchange rates of different national currencies in relation to each other. By fixing the values of currencies to a stable index, the British tried to facilitate the
international flow of commodities. Britain assumed leadership because of its position in the world economy. It was the most industrialized country, driven by a rapid accumulation of wealth and governmental policies such as the repeal of Corn Laws in 1846, which restricted agricultural imports. By cutting the power of the agricultural elite, industrial capitalists in Britain not only altered the domestic balance of power in their favor but also opened up the British economy to foreign imports. While that provided a common good to other countries (France, Germany, the United States) in terms of rising exports in the international system, these countries consented to lower their tariff barriers against British goods too. Starting with the 1860 Cobden-Chevalier treaty between Britain and France, numerous arrangements emerged to lower trade restrictions around Europe (O’Brien, 2002).

While the industrial revolution and naval power underpinned British power, other emerging industrial countries grew steadily under the protection of British imperial liberalism. After the 1870s, with the first depression of capitalist economies worldwide, these fledging economies and their political elites increasingly competed with Britain (Arrighi, 2003). According to Wallerstein, mercantilism and the protection of domestic trade from outside competition became the favored approach, as the continental powers sought to resolve the domestic and external problems caused by the Franco-Prussian War.

The technological investments by these competing powers surpassed that of British liberal economy and erased most of the competitive power overseas of the country’s cheap manufactured products. This further aggravated nationalistic fervor among these new industrial economies to secure overseas colonies for raw materials and markets. Increasingly Germans, Americans, and the Japanese tried to develop superior navies and acquire territorial space, seeking to colonize the rest of the world (Wallerstein, 1999). In reality the international gold standard and laissez faire capitalism did not survive because an invisible hand could not regulate commodity flows and capital stocks. Rather, international investors and traders believed that the Bank of England could compensate any demand for gold in exchange of pounds, thus sustaining the system if there was any disequilibrium in demand and supply. Also as Barry Eichengreen argued, the pre World war- I political environment within the core countries of the system largely isolated central banks and monetary decision-makers from political pressures or associated democratic accountability. The working class and labor organizations were not mature enough to counter the outlook of free market capitalists. The unemployment problem during the years of financial and economic crisis was perceived as independent from monetary policy decisions of central banks. Nearly everyone within the gold standard system had accepted the hegemony of liberal ideas, the preeminence of which corresponded to an era in which finance capital was the dominant faction of capitalist class (Eichengreen, 1996), (Pijl, 1984). This rise of financial capital mainly stemmed from an increasing concentration of wealth in fewer hands through uneven but rapid capital accumulation in a free market environment. The industrial capital was largely absorbed by banks and financial companies as the domestic rate of profits from industrial production began to fall, a development which pressured capitalists to look for overseas markets since the return of capital/input ratio in advanced economies was decreasing due to exhaustion of profitable markets (Brewer, 1980).

In the 1890s new advocacy groups emerged in the Mid-Western United States and Britain whose demands included domestic subsidies for agriculture and anti-monopoly laws against the ferocious encroachments of finance capital and monopolies into the lives of ordinary farmers. In the context of rising unemployment and poverty, the working class began to organize in inner cities, as the adverse effects of the 1873 and 1896 business cycles were deeply felt. Meanwhile, the anti-money capital discourse of small business found new allies among the ranks of nationalist industrial capital. The rhetoric of anti-Semitism and Anglo-Saxon supremacy coupled with the reification of “productive” capital against money-capital and of the inherent industriousness of Protestants all hinted at the coming era of colonization. These ideas resonated with a broader public, at the same time elites in the newly industrialized powers saw that in order to compete with overseas rivals they needed to directly control markets and shipping routes. This would be more profitable than just competing in capital exports (Pijl, 1984) According to Kees Van Der Pijl, the fruition of these imperialist plans evolved differently in the Anglo-Saxon world than in other countries such as Germany and Italy that industrialized late. In these countries, the bourgeoisie was weak and dependent upon the feudal aristocracy of the old regime. State monopolies and ultra nationalistic tendencies were the results of this class balance of power. In the meantime in the Anglo-Saxon world, former leader Britain and the American elite preferred to subscribe to the idea of universal good, which is still espoused today in the ideology of the white man’s burden—that is the obligation to civilize “savage” peoples for their own good.

The social struggles that ensued after the turn of twentieth century were largely between industrial capital and money capital within core countries. However, the growing assertiveness of the working class and its popular pressure over economic and political decisions aggravated the systemic crisis that indirectly strengthened the statemonopoly current of industrial capital. Beginning in the 1890s, the United States, France, and Germany increased their defense budgets, specially their naval expenses (Pijl, 1984). These popular pressures and assertive nationalist agendas pushed the ailing British Empire closer to the United States, while Britain had profound disagreements with the French and Germans over the colonization of Africa. With this development the main psychological effect that kept the gold standard system and laissez faire capitalism intact, the international solidarity that supported other central banks or governments decisions on exchange rates and convertibility was wounded. Increasingly international investors tested the ability of the Bank of England to satisfy the gold reserve requirements of the international monetary system. Unlike what economists thought, uncontrolled financial flows and currency trading did not always spur growth or create employment. Sensing the weaknesses of governments, investors often initiated speculative attacks on currencies. They demanded more and more gold from governments, who tried to balance exchange rates through selling gold from reserves, which in turn depreciated the reserves and made them more vulnerable. In an earlier era, these governments relied on others’ gold transfers to the problem country due to the aforementioned international solidarity. Perhaps in the early nineteenth century, when central banks were insulated from domestic popular pressure demanding they tackle unemployment or spur domestic consumption levels, governments could allocate much more resources to protect their exchange rate parities. However, during the 1910s, with capitalist rivalry abroad and domestic working class demands, economic decisions had to follow politics (Eichengreen, 1996) (Madison, 1997).

With the end of the World War I, which epitomized the climax of capitalist rivalry among Western powers, the worldwide balance of power was reconfigured. With the destruction of the war upon its economy and overseas markets, the British Empire became a shadow of its former self. France, Germany, and Italy all lined up behind the United States, since the world’s largest debtor became the biggest creditor after the four years of increased domestic demand and growth. New York City and Wall Street gradually took over financial leadership from London.

On the Eastern front, with the Russian government overthrown and the successful conclusion of Bolshevik revolution, tensions sharpened between the capitalist class and the industrial working class. In order to prevent more radical turbulence from decolonized nations or the international proletariat, U.S. president Wilson launched his liberal offensive in his Fourteen Points, which emphasized the self-determination of newly decolonized nations. His main aim was to pacify radical tendencies through supporting nationalist but “liberal” minded (i.e., capitalist friendly) elites within the Third World. However, in the tumultuous years of the interwar period, the American liberal offensive, or the state-monopolist project of corporate liberalism, could not be successful. First internal alliances within American ruling class were still favoring more or less finance capitals’ conception of free market capitalism. Second, in Europe and in the United States, there were groups whose anti-Semitism and reactionary nationalistic outlook, whose predatory aims began the war, prevented any international reconciliation over monetary policy or strategy.

In the environment of the late 1920s declining gold reserves in war-torn countries, which had problems with inflation and unbacked paper currency usage, forced governments to accept free floating exchange rates due to impossibility of defending pegged currencies. After 1925 European countries somewhat stabilized their economies and exchange rates by resorting to different variations. Most countries started to accumulate foreign currencies like the U.S. dollar in their reserves, as the situation after the war made it almost impossible for individual countries to obtain large amounts of gold. Those uncertainties increased the anarchic price determining tendencies of the free market, which were instrumental in generating the 1929 market crash and ensuing Great Depression. First of all, vulnerable financial conditions were incentives for financial speculators to make quick money from currency speculation or attacks on pegs that countries tried to protect (Eichengreen, 1996) (Pijl, 1984). These capital movements were mostly driven by short-term profiteering, which fostered non-productive or reckless investments in world economy. They also disillusioned capitalists since, in the post-1917 anti-union era of the red scare, the discrepancy between rising profits and real wages created a demand side problem. However, luxurious consumption and financial speculation provided some breathing space for free markets, creating a sense that there would be no downturn in the economy. In 1929, starting with commodity prices and corporate profits, world capitalism saw a general decline in profits and production. Up to that time, the free reign of corporations over other social forces, especially in the United States, gave a false sense of confidence to capitalists, as their share of wealth or surplus value increased proportionately to their increasing strength vis-à-vis other classes.

In the sphere of agriculture, the glut of goods pushed prices down, which directed farmers “rationally” to produce more in order to make more profits with cheaper agricultural commodities. However, that individual decision further depressed prices due to lack of effective demand. In the industrial sector, with its ferocious anti-unionism, capitalists had already comfortably pruned all the gains of the working class, which in turn created an enormously unequal distribution of income. Conspicuous consumption of the rich and the increasing production of monopolies to increase their stock prices generated the impression that the United States was on the brink of an unprecedented growth cycle. The false illusions were dashed when the U.S stock market collapsed on October 29, 1929.

Although the major signs of depression were apparent, conservative laissez faire economists could not ameliorate the malaise and prevent the ultimate collapse. As factories were closing and firing their employees, the central banks were helpless in the framework of liberal economics. The situation was aggravated by the erection of tariff barriers in major capitalist countries, which further depreciated the volume of world trade. Classical economists even thought that the problem would be solved by depreciating wages, as high wages caused decreased profits. If no one intervenes, or even if the money supply is constrained to reduce overproduction or to prevent inflation, the markets would automatically correct themselves naturally.

The Hoover administration’s series of policies proved disastrous to the American economy. In a chain reaction, Western European economies went into recession, as most of them were financially tied to the American banking system and industrial sector in the aftermath of the First World War. The most severe results were seen in Germany, which defaulted on its war reparations. The crisis created the plausible terrain for the ascendance of socially-minded corporate liberalism in Western capitalist countries. Laissez faire economics and its staunchest supporter, money capital, virtually receded from the forefront of politics during the turbulence of Great Depression (Brewer, 1980) (Temin, 1989) (Eichengreen,1996).

British political economist John Maynard Keynes found a very simple cure to the Depression. According to his theory, most of the poor save money in difficult times, resulting in the hoarding of too much money and the dwindling of demand. To reinvigorate demand, governments should enlarge the money supply, or in extreme conditions like the Great Depression, they should spend money, which in turn encourages others to spend. By providing money to consumers, confidence levels would increase and have a wealth effect that boosts employment (Keynes, 1936). Keynesian ideas were put into effect after 1933 and gained full recognition after 1938. The appeal of Keynes’s policy prescriptions was bolstered during Second World War, as the Roosevelt administration generated a large economic boom with the help of war expenditures and decisions that enhanced public spending and employment.

Throughout the war years, world governments and dominant classes learned that they could control inflation, unemployment, and business cycles through Keynesian fiscal and monetary policies. Before exploring the postwar period, it is necessary to understand the underlying production relations and ideological struggles of the Keynesian era.

The Fordist mode of accumulation was first initiated by American industrialist Henry Ford at his auto factory in Dearborn, Michigan. As we saw above during the Depression years and in the aftermath of the World War, most of capital investments suffered from a fall in the rate of profit, which created unemployment and production cuts. In that context firms that innovated new technology achieved increased productivity and were more competitive than their rivals who remained committed to old forms of craft production techniques. Old craft production techniques provided too much freedom to skilled workers in terms of organizing the pace and form of their work. That system depended on a piece by piece wage payment system that not only encouraged the aforementioned tendencies, but also, by increasing the leverage of the worker over the conditions of his/her employment, created problems for capitalists in subjugating the workforce to factory discipline. Since the control of the labor process was an essential component of extracting surplus value in the tumultuous years of 1920s, these weaknesses on the part of capital occasionally spurred industrial crises. Craft production usually aimed to maximize absolute surplus value, which was crippled by the actions of industrial workers and could not compete with the new Fordist emphasis on the extraction of relative surplus value (Rupert, 2000).

The Fordist accumulation model itself did not achieve complete dominance without class struggle. Struggles between the Congress of Industrial Organizations (CIO) and industrial giants rendered it difficult for capital to impose this system of accumulation onto the body of industrial relations in the United States. These struggles led to a different system of industrial relations than Western Europe. This new model, using Taylor’s production techniques, especially the assembly line, increased the pace of work through the complete mechanization and automation of the work. This minimized the worker’s discretionary power over his or her work as the new discipline of assembly line tied individual worker to the whole body of the workforce, thereby emphasizing not the quality of the individual piece but the whole collective effort. This created a rift between skilled and unskilled workers due to the fact that mechanized production demanded little creativity from the worker; indeed, it reduced their creativity by exposing them to excruciatingly boring repetitions. Also, by incorporating science and technological progress into the production process, Fordism increased productivity to unthinkable levels compared to old forms of craft production. In turn, mechanization allowed Ford to reduce prices and marginalize competitors in the market. Ford also encountered massive resistance to his schemes, as turnover rates, sicknesses, and absences convoluted his profit raising plans. These forms of worker resistance, coupled with the CIO’s victories against anti-unionist Ford in 1937, turned the attention of the capitalist strata to the social and ideological aspects of the class struggle.

Though Ford’s sociology department with its Protestant work ethic guidelines was not successful, Ford Foundation grants and Ford’s reconciliation with labor on cutting work time and raising real wages were. The aftermath of the 1937 Second New Deal offered fertile terrain for Roosevelt and liberal internationalist factions of the capitalist class to combine Keynesian practice with forms of worker control embodied in the Fordism.

So in the aftermath of the two New Deal programs, in which Roosevelt’s progressive state became the arbiter between corporations and labor, the American ruling class restored people’s confidence in the capitalist system (Ferguson, 1995). By controlling the excesses of Wall Street with finance and banking reforms, inflating agricultural prices to compensate for lost farmer incomes, and granting more collective bargaining rights to labor (at least their main industrial organizations were accepted as equal negotiators on the table), the American economy became robust. The stability pact, which incorporated labor unions as junior partners in the postwar system, would be projected worldwide, as interwar and intrawar economic developments elevated the United States to the position of global leader of the Western world. Since the ruling class was well aware that interwar instability came from a lack of regulation among big capitalist economies, they put forth a plan at Bretton Woods that aimed to internationalize the American domestic stability pact, as well as further foster conditions for the extension of American industrial and military power (Gill, 1988)

The New Deal and the emergence of welfare states within the Western bloc was nothing other than what Gramsci called passive revolution (Gramsci, 1971). In this new organization of state power, the bourgeoisie, especially internationalist monopoly capital, accepted some of the demands of the working class in order to neutralize the revolutionary potential of its adversary. However, the capitalist character of the relationships of production remained intact. In the Fordist compromise of the 1950s and 1960s, trade unions largely accepted the supremacy of capital in the work place and refrained from using their destructive potential as the Fordist and Keynesian policies required mass consumption capability for the mass production of commodities. That compromise provided rising real incomes to workers within the limits of capitalism until 1970s.

Moreover, given the international conditions of the postwar era with the Soviet Union a major industrial rival and European economies in ruin, which consolidated fears of revolutionary insurrections, capital had no choice but to prefer welfare capitalism to an unstable mode of production. Certain sections of the ruling class learned from the Great Depression and Keynesian polices that they could use the capitalist state as a means to secure the long-term interest of the bourgeoisie as a whole. The subordination of shortterm interests of class factions like money capital was necessary. The most salient proof of this passive revolution was the fierce anticommunist rhetoric espoused by the United States and its Western allies after the war (Cox, 1987), (Rupert, 2000), (Gill, 1988). Even the American Federation of Labor (AFL)-CIO joined this crusade by purging communist militants and supporting anticommunist “free trade unionism” around the world in direct collaboration with the CIA. These changes in state form and capitalist ideology were accompanied by a set of international regulations that were drafted in Bretton Woods in 1944.

The deal that was struck at Bretton woods in 1944 largely reflected the balance of power within the world system, and especially among the different competing sections of capital within the American ruling elite. The existence of British negotiators, and Keynes at the table, colored the eventual agreements so that they were more in line with the protectionist cause of Britain’s sphere of interests. Those articles in the IMF agreement that gave flexibility to governments in domestic policy, for example, allowed countries to devalue their currency in the face of trade deficits at the expense of the stability of old gold standard days. Some of the trade arrangements concerning preferential treatment of specific nations are an indication of the interventionist strand of the postwar deal.

Bretton Woods first stabilized international exchange rates by establishing 1 ounce of gold as equal to U.S. $35. Since United States was the biggest creditor, it immunized itself from speculative attacks by virtue of its massive gold reserves (Webb, 1995). Also parallel to the objectives of American hegemony, three postwar institutions were created (Pastor, 1980). First, the International Monetary Fund was established to help member nations solve their balance of payment problems. The IMF was intended to be a lender of last resort in case of balance of payment deficits, which made countries vulnerable to speculative attacks on their currency. This provision was designed to guarantee domestic stability in concerned nations since measures like devaluation and interest rate hikes would create reductions in the purchasing power of the masses. The IMF lent money to these deficit countries in order to stabilize transition periods. In addition by installing a weighted voting system, the dominant capitalist powers gave themselves crucial decision-making abilities, denying newly independent Third World nations substantive influence within the institution. This obvious dominance of capitalists in control of the IMF resulted in the exclusion of communist countries from the Fund’s activities altogether (Heleiner, 1994), (Cohn, 2000).

Second, the World Bank, founded in the aftermath of the World War II, was designed to provide reconstruction and development finance to countries, especially for planned projects rather than purely financial matters. The smaller nations and the Eastern bloc showed more interest in the Bank because of its supposed priority of supporting planned projects, which implied that it was relatively independent from capitalist interests in the organization phase of projects. However, the management of the World Bank and IMF has been generally determined by the consensus of Western powers. The IMF’s executive directors are chosen from Europe, while the World Bank’s presidents are usually American (Helleiner, 1994) (Van Dormael, 1978).

The General Agreement on Tariffs and Trade (GATT) was the third institution drafted in Bretton Woods. The GATT was designed to create a liberal international trade environment by securing gradual mutual tariff reductions within the international system. As one of the greatest obstacles to recovery before the war period was the competitive nationalistic tariff increases by big powers, the postwar consensus aimed to prevent the repetition of it. This tariff agreement can also be interpreted as a concession to the more liberal minded parts of the bourgeoisie for it’s acceptance of domestic policy priorities of respective governments. For example, as a further stabilization of domestic economies the Bretton Woods agreement put controls on capital movements to eradicate the speculative tendencies of the international financial system. Moreover controls on capital movements guaranteed steady tax revenue for governments necessary to finance Keynesian policies. The welfare reforms that constituted part of the hegemonic discourse of elites to entice trade unions into postwar capitalist plans significantly depended on steady tax revenues. Thus, allowing unfettered mobility to finance capital would have caused a crisis within the structures of welfare state (Pijl, 1984).

In the wake of instability that was created by the Allied victory, most European countries and bourgeoisies felt threatened by the radicalization of working class movements, as they still did not have the economic basis to support the new international consensus around Fordist corporate liberalism. Some sections of the European bourgeoisie even resisted this new accumulation style as it hindered colonial policies. One of the basic conditions of Marshall Plan Aid to these countries was to end their discriminatory trade practices in their colonial spheres as dominant American capital wanted to penetrate these regions. A substantial part of the Marshall Plan was designed to spur international demand for American commodities and agricultural products. Harry Truman in his memoirs argued for the necessity of raising the living standards for the people of Africa and Asia to keep up the sustainability of capitalist production in core countries like the United States (Pijl, 1984).

What American capital wanted from Europeans was to create a flexible political environment so that mass consumption, required by mass production of Fordist assembly lines (including raising living standards for working class), and the gradual liberalization of international trade would complement each other. However, the political concessions given to the working class stopped short of endorsing any encroachments on the prerogatives of private property. If we turn back to Schmitter’s concept of corporatism he wrote: Corporatism can be defined as a system of interest intermediation in which the constituent units are organized into limited number of singular, compulsory, noncompetitive, hierarchically ordered and functionally differentiated categories recognized or licensed (if not created) by the state and granted a deliberate representational monopoly within their respective categories in exchange for observing certain controls in their selection of leaders and articulation of demands and supports (Quoted in Panitch,1980:p 167).

The Roosevelt administration’s New Deal policy and associated forms of Fordist social relationships were emphasized as the prototype of this new order in Europe and rest of the world. As argued above, the New Deal state in America was not a radical break up from the old mode of production, rather it was a reconfiguration of class interests within the state in the aftermath of the Great Depression in favor of the liberal minded state-monopoly faction of the bourgeoisie, which had attained a sound victory over finance capital’s laissez-faire-style capitalism with the tremendous growth numbers of Fordism and New Deal.

In order to preempt and further reduce the resistance of European colonial interests among the bourgeoisie and the more militant and skilled working class (who were adamant to protect their power over production in the old guild-style organizations), Truman used liberal European parties of Europe to pacify the former and the AFL-CIO to disorient the latter. In France liberal parties of the Fourth Republic gained power. Liberal leader Herriot took up many important positions in the new parliament, and Rene Mayer of the Radical Party became the finance minister, gaining strength against both the left and conservatives. This processes culminated with the premiership of H. Queuille from 1948 to 1949, who succeeded in carrying through the major monetary and economic adjustments required by Marshall Plan. In Germany the liberal FDP had important cabinet positions, especially in the ministry responsible for Economic Cooperation until 1956. The German subsidiaries of U.S. firms and their managers strongly supported Atlantic unity and liberal minded legislation, as the Allied powers brought most of these liberals into major trusteeship positions in postwar Germany. In Britain Churchill and Eden’s return to power replaced conservative nationalist tendencies with liberal internationalist ones within the British state. With the 1956 Suez debacle, the old imperial yearnings of British conservatives shattered, thus consolidating the liberal faction’s grip over the state. The corporate strategies of British corporations such as Unilever, ICI, and Lloyd Bank’s followed the dominant Atlantic pattern closely during those years. In Italy after the Liberal Party’s inclusion within the government in 1948, textile capitalists and their confederation’s head, A. de Micheli, undertook joint ventures with American capital.

Major Italian private steel firms’ endorsements of American style democracy contributed to the liberalization of Italian politics. In the Netherlands and Belgium, liberal parties, strongly supported by the United States, came to power with the agenda of joining the Atlantic capitalist alliance (Pijl, 1984).

American efforts, however, were not confined to liberal parties; the United States also worked with Christian Democrats not only by boasting the positions of liberals in those parties but also by creating a common front with these parties’ religious bases against the “godless” communist threat. The second dimension of this Atlantic alliance was to replicate the features of AFL-style collective bargaining within Europe through deradicalizing the leftist tendencies of European labor by incorporating them within the institutional structures of the new corporatist framework.

The AFL started this labor offensive from occupied Germany, as it was the easiest country to influence, by creating labor groups that were outside the traditional idea of workers’ councils in Germany. The major aim was to propagate the AFL’s version of economistic trade unionism, which ultimately breaks with any class heritage or perspective in dealing with employers. The aim was to increase productivity and growth in a harmonious relationship with the business rather than to spur an independent and conscious working class worldview among the workers. The ICFTU (International Confederation of Free Trade Unions) was founded to counter the influence of WFTU, which the U.S. perceived to be nothing more than a tool of Soviet policy.

This American offensive, complemented by the purge of so-called “communists” from the CIO in the 1950s, tried to create a rift within the general labor confederation CGT in France. After failing its first attempt, the AFL-CIO (unified after 1955) eventually succeeded in infiltrating the Socialist party and union circles. Avowed anticommunism accompanied by efforts to gain the trust of the French working class on American foreign policy did not bring a majority to the pro-American camp but deepened local divisions among the French trade union movement, preventing it from becoming an anti-capitalist force. In Italy by supporting Catholics, the AFL tried to divide the main trade union, CGIlL, but the fragmented nature of Italian politics prevented further unification of pro-American forces beyond anti-communism. In the Netherlands and Belgium, the main trade union leaders were already paid agents of the CIA so penetrating them was relatively easier. The British labor union TUC was under the influence of the Labor Party and immediately recognized American leadership, especially organizing around journal “Socialist Commentary”, which primarily propagated anti-communist left rhetoric in Britain (Pijl, 1984), (Gill,1988).

Thus this entire endeavor to control the European working class consolidated the concept of Atlantic Fordism since by then the infrastructure of the main industries was sufficiently prepared for the application of the mode of American-style accumulation and industrial relations. In terms of corporatism most of these labor unions were incorporated into the hegemonic bloc of Fordism by accepting the predominance of business in workplace organization in exchange for economic concessions such as rising living standards and welfare benefits from the state. This working class adaptation of the separation of economic demands from political objectives in reality impoverished the class perspective and the power of labor; it also prepared the groundwork for the further attack on labor’s social rights in the 1970s resulting from the multinational capital offensive. That offensive aimed to “technocratize” even economic issues, rendering them solvable by and understandable to only so-called experts (Pijl, 1984).

These comprehensive concepts of control, like Fordism and the welfare state, contained their own contradictions. For example, banks had gotten the right to form large holdings, and their taxation was stabilized in the United States (Gill, 1988). Dividends from capital gains and tax deduction of ground rents from oil exploration especially strengthened the hands of financial capital and oil and mineral industries. Monetary controls on capital movements were relaxed as a complement to the above.

In Europe the conservatives who thought that the imperialism could lose control in the periphery opposed Harry Truman’s aggressive support for decolonization. These developments somewhat challenged Atlantic unity, as frictions heightened between pro-U.S. sections of the European bourgeoisie and the factions that wanted to protect their overseas imperialist interests. In that environment London-based banks, which wanted to bypass the currency controls imposed by the British government, attempted to create a Eurodollar market. This was as an indication of the coming laissez faire offensive.

According to Pijl, this was a demonstration of industrial capital’s weakening share of international trade vis-à-vis finance capital. These divisions also prompted the CIA and corporations like Unilever to organize a conference at Arnhem’s Bilderberg hotel to discuss important issues like Western unity against Soviet Union and how to handle decolonization, but the meeting could not reconcile the colonial interests of France and the modernizing influence of American capital (Pijl, 1984), (Gill, 1990).

In the 1960s the Kennedy administration sped up efforts to recover from special interest dominated politics. In order to refresh the New Deal policies and reinvigorate American industrial capital’s investment returns at home and in Europe, the administration started another Atlantic unity offensive.

For example granting the black population full citizenship rights not only solved the democratic legitimacy problems of U.S elite but also facilitated the incorporation of a potentially explosive social strata into the Fordist framework. Other programs like the war on poverty and extensive social assistance packages were required in order for the administration to be able to launch a more activist foreign policy on the Cold War front and in the Third World’s newly independent states. As financial markets increased their attacks on regulation through the Eurodollar market and some parts of the European elite invested in American bonds and other rent related instruments, productive industrial capital tried to press the Kennedy administration to spur its fortunes, perhaps for the last time before the great profitability crisis struck (Gill, 1990).

In the colonized parts of the world, people who gained their independence from imperialism after arduous struggles were, nevertheless, greatly affected by the structural and cultural penetration of centuries-long Western intervention. Local leaders of resistance movements mostly saw two alternative hegemonic paths when they decided to embark on socioeconomic development. On the one hand, Soviet-style socialism, with its impressive development record in a very short period of time, was seen as a solution. On the other hand, by emphasizing the lack of political democracy and the totalitarian nature of the Soviet model, some factions embraced the idea of catching up with the West and aspired to become like the United States by the end of the century. The crucial element in those struggles was most of the leaders of African and Asian independence movements were either nationalist or subscribed to different non-Marxist notions of socialism, like Arab Socialism (Kaber, 1967), (Beinin, 2001).

Given the worldwide balance of forces and the Soviet Unions’ tacit acceptance of Western backyards in the periphery, exemplified by Stalinist concepts such as the necessity of collaboration between the subordinated classes and national capitalists against imperialism, independence movements focused more on the nationalist aspect of liberation. Actually U.S president Truman also advised Third World countries to adopt some form of nationalism as long as it kept them from direct Soviet influence. So Truman’s four point program and U.S.S.R’s objectives regarding newly independent territories complemented each other.

Also, according to Robert Brenner, “between 1957 and 1965, manufacturing investment by majority owned foreign affiliates of U.S companies in new plant and equipment overseas grew at an astonishing annual average rate of 15.7 percent” (Brenner, 1998: p 55). Western involvement brought about a twisted corporatism, as it passed to the periphery not the model of Fordist industrial relations but the Taylorist form. In mass production centers, largely the orientation was assembling foreign produced parts by a group of skilled workers who were incorporated into the domestic hegemonic project through recognition of their social rights and trade unions. But the remaining layers, for example, female workers or workers in service and agricultural sectors, lived under conditions approximating slavery. In these sectors Taylorism and super- exploitation were the organizing ideas. So unlike mass-based democracies of the West, the peripheral corporatist arrangements generated authoritarian and crisis prone political systems, since the adaptation of mass democracy could jeopardize the fragile hegemony of domestic elites. In different parts of the Third World, the more powerful industrial bourgeoisie could, at least in short durations, increase the representation levels of subordinated classes to both increase its legitimacy and mass consumption until another business cycle struck their profits.

One can argue that the Fordist compromise in the core was spread to the Third World elite in the 1960s through American projects like the Alliance for Progress, which aimed to offer development assistance to strengthen Western influence and economic appeal against the Soviet Union’s autarkic economic policies. But this seemingly successful capitalist consensus on Fordism and its industrial organization started to crack with the tendency of industrial profit to decline after 1965. The result was global cutthroat competition and an ever growing U.S. balance of payments deficit emanating from large defense and social expenditures (Gill, 1988).

German and Japanese states and capitalists in turn enjoyed the protectionism that was financed by an overvalued U.S. dollar, not only in an economic sense, but they were also immune from large-scale defense expenditures by the virtue of positioning under the American nuclear umbrella against the Soviet Union. On the economic side, German and Japanese states provided direct financial support to their respective capitalists, and corporatism connected the state, finance and industrial capital, and labor unions to the issue of increasing productivity and export oriented growth. Even in sales processes, German and Japanese bank capital and state agencies supplied crucial financial and marketing information to their fledging capital. On the labor front, these governments repressed labor militancy with the help of American occupiers and increasingly suppressed trade union demands by either using low-wage workers from countryside or inviting skilled but cheap labor forces of Third World countries (except Japan). As the U.S. international interest and strategy depended on increasing the power of its allies, it opened its large domestic markets to German and Japanese goods, while their capitalists benefited from isolated markets within their borders. Technology transfer was another crucial part of the development aid package that the United States offered to its allies. This was indeed a crucial element as direct state aid to European and Japanese capital, especially in manufacturing, created more flexible production lines within these countries. The Germans and Japanese used this easy access to technology, sponsored by the state, to their advantage in terms of cutting costs in manufacturing lines. On the contrary, the United States only supported its capital through Keynesian policies, stimulating aggregate demand by increasing the money supply, especially through its massive military purchases. American liberalism did not support European-style comprehensive state planning in specific industries (Brenner, 1998). The direct result of those events and policies was the massive fall in the profit rates of American manufacturers between 1950-58. Under that period profits fell 41 percent. As wage increases spurred higher production costs, the money supplied by the military-industrial complex largely incurred inflationary costs to the economy. The early 1960s offensive aimed at cutting labor costs and reducing productivity problems, only slightly reinvigorated profits, and was not a long-term panacea to the problems of American manufacturing.

While the GATT rounds gradually eliminated high tariffs and other trade barriers, international competition escalated among the industrial powers for new markets and raw materials. The American manufacturing industry, which already had massive sunk capital investments in fixed properties and a legacy of tight labor markets, found it less attractive to completely renovate its capital investments as fast as its overseas rivals. That fact, coupled with the oligopolistic behavior of American firms in the domestic market, relatively reduced the profit margins of new comers since large companies decided to stay in an established manufacturing line as long as they attained a rate of return that could compensate their sunk fixed capital investments. The necessary price increases could not be transmitted to consumers as cut-throat international competition from Europe and Japan already removed that option from consideration. As the German and Japanese states created closer ties between banks and their manufacturers to instigate export booms, for American finance capital, overseas investments were more profitable than supporting domestic ventures, because the dollar was strong vis-à-vis rival currencies. The situation was further exacerbated by the tendency of American firms to invest overseas and sell their goods to domestic markets as imports since they had weaker rivals and more profitable lines in those distant markets. Finally, the American state’s defense expenditure or military-related demand incentives did little to increase productivity, because it bolstered neither the total capital investment in the means of production due to the nature of its output nor the total consumption of workers. However, it did comfort trade rivals of American business by making them decrease their own military expenditures (Brenner, 1998) (Gill, 1990), (Pijl, 1984).

After 1965, manufacturers worldwide, especially the Group of 7 economies, suffered from significantly reduced profit margins. According to Robert Brenner, the decline occurred because fledging Japanese and German industrial capital captured considerable markets. Under normal conditions, these firms should have forced unproductive rivals out of the market or diverted their resources into other manufacturing lines or sectors of international economy. However as mentioned above the sunk costs of fixed capital requires time for efficient returns. Most of the obsolete producers stayed in their lines to at least recover their circulating capital. This caused an immense crisis of over-capacity and overproduction within world trade. Between 1965 and 1973, U.S. manufacturers sustained a decline of more than 40 percent in the rate of return on their capital stock. Moreover, efforts to recover profitability, such as the sustained assault against unionization (unionization rates fall sharply after 1960s) and securing government support to correct the imbalances of international trade terms (Nixon’s decision to opt out of the Bretton Woods gold-dollar parity), further deteriorated the conditions for G-7 economies. By massive dollar devaluation, U.S manufacturers simply exported the crisis to German and Japanese manufacturers (Brenner, 1998).

The factors that influenced postwar American hegemony can be summed up as follows: First, the intensification of inter-capitalist competition, especially when cheaper Japanese and German products started to capture the U.S. domestic market, resulted in the erosion of the oligopolistic pricing power of U.S. companies within their own territory. This was largely the result of U.S. cold war policy, as successive administrations supported the development and industrialization of allied countries.

Second, the widening postwar social safety net and active use of macro policy to limit unemployment placed constraints on the power of capital. These principles are embodied in what John G. Ruggie called embedded liberalism, which caused delays in capital’s response to international requirements of capitalist competition. Third, after 1968 there was increased social discontent worldwide. In the United States, this stemmed from the Vietnam War and civil rights violations, while in the Third World it was partially rooted in the increasingly populist (nationalist) discourses of elites. These developments, coupled with the beginning of recession in the fourth quarter of 1969, considerably constrained American geopolitical power not only to favorably change the terms of international trade but also to successfully manipulate international politics against the Soviet Union (Ruggie,1996) (Ikenberry, 2001).

The U.S. government’s response to the domestic crisis of its firms was to pump up demand by injecting money into the market either through defense expenditures or other government procurement. As American companies could not increase their prices due to international and domestic competition, and given the fact that investing and creating additional capacity required time, the government’s fiscal policy produced runaway inflation. While the U.S. was incurring huge budget deficits, Germany and Japan accumulated huge budget surpluses, which contributed to the financial imbalances within the system.

With Nixon’s decision to opt out of the Bretton Woods’ gold/dollar parity, supported by American capital’s massive offensive against unions and wage increases in the manufacturing sector and the Federal Reserve’s anti-inflationary policies, American capital tried to restore its position. Those measures temporarily shifted the direction of money capital to the U.S. reduced the costs of U.S manufacturers significantly in comparison to overseas rivals, and exported the crisis to countries with overvalued currencies, in turn diminishing the productivity and profitability of German and Japanese capital (Gill, 1988).

Finance capital’s power and its position in the hegemonic bloc rose positively in the light of these developments. The anti-inflationary policies of FED (Federal Reserve Bank) (i.e, rising interest rates) provided finance capital with opportunities for arbitrage between low-interest and high-interest countries. Growing U.S. deficits and rising surpluses in Germany and Japan created incentives for finance capital to launch massive speculative attacks, as many countries could not defend fixed exchange rates with their diminishing gold reserves. Also the non-manufacturing sector, such as services, largely protected itself from international competition by preventing wage growth within its domestic markets. Since the creation of Eurodollar markets, finance capital also found a venue to bypass government controls on its foreign investments. The last ditch attempts of governments to increase controls were further overcome by creating offshore-banking institutions, which the United States and United Kingdom condoned because they wanted to promote New York and London as the main financial centers. The balancing of budgets was not politically convenient in democracies, and thus politicians chose to finance those deficits through debts. That means they have to concede more to the finance capital in order to obtain necessary loans. From 1965 to 1973 financial institutions within the G-7 initiated new mergers, thereby spreading their interests within other sectors of the economy. Britain and the United States were the first to free their finance capital from controls regarding the holding activities of financial groups. The declining profitability in manufacturing diverted manufacturing investments into the financial sector also, as firms sought to restore their own position. Chase and J.P. Morgan, whose profit share of international activities were 25 percent and 22 percent respectively in 1969, increased their shares to 78 percent and 56 percent by 1976. In Europe financial firms, such as ABN Amro, Barclay, Deutsche Bank, and the French Paribas, initiated mergers with productive sectors and their American and Japanese counterparts to construct a new trilateral hegemonic project to replace the old Keynesian-Fordist promises. As the 1973 oil crisis deepened economic problems and further reduced manufacturing profits, the new economically liberal era dawned, promoting individualism and orthodox prescriptions of laissez faire capitalism.

As Robert Brenner argued persuasively in his 1998 article, the bottlenecks that the capitalist system confronted after 1973 initiated a major downturn within the capitalist world, especially in G-7 economies. Since the Nixon administration’s decision to abandon the Bretton Woods exchange system, governments, starting with the United States and Britain, joined the corporate assault. While corporations wanted to reduce real wage growth, governments applied pressure on the growth of welfare expenses by cutting social expenditures. All these policies aimed to eliminate the so-called inflexibility of labor markets, which anti-Keynesian economists deemed to be the biggest hurdle to the recovery of profitability. Nevertheless, the neoliberal prescriptions failed to spur a momentum to profitability, especially in manufacturing.

First, the old manufacturing firms decided to stay in business despite tight credit, a low level of demand, and low level of profit. Under these conditions of inefficient operation, these companies should have been forced out of manufacturing. However, these established companies had intangible benefits from their lines of production, such as sound relationships with consumers and markets. Their circulating capital and fixed capital stock also sustained their production against adverse conditions for a significant period of time.

Second, neoliberal policies reduced aggregate demand overall in capitalist economies, which in turn reduced the profitability chances of other production lines, namely they prevented those companies from trying alternative sectors. The entrance of Third World manufacturers into the basic sectors of manufacturing, such as textiles, processed food, and commodities, largely intensified competition levels among capitalist rivals. Increased competition further reduced the chances for manufacturing to recover.

Third, Reagan and Thatcher’s massive military expenditures and budget deficits created an unprecedented growth of government debts to finance the deficits. In that context finance capital supplied enormous amounts of money to make profits from companies which were starved for capital investment and strained consumers who are seeking to sustain their consumption levels. The striking point about these debts, however, is that they did not actually create the conditions for a massive overhaul of capital investment, the recovery of profitability, or a general increase in aggregate demand. They largely saved big capitalist economies from entering into a deep depression under the recessionary conditions of the 1980s, essentially prolonging the life of low-profit, high cost firms in manufacturing. The growth of general indebtedness around the capitalist world not only strengthened the hand of money capital—through speculative attacks on surplus and deficit countries’ currencies in a free floating regime—but engendered a situation in which the eventual eradication of overcapacity within capitalist manufacturing was postponed through this artificial respiration (Brenner, 1998).

For example, most Third World countries, as a result of neoliberal prescriptions and free floating currencies, had to adopt higher interest rates in order to attract foreign investors even though it drowned their domestic demand. However, short-term speculative finance generally increased the deficits of these host countries as most of them tried to balance their long-term deficits through short-term debts from open markets. Then a vicious circle occurred in which rising deficits provide conditions for the further currency devaluations and render the country more vulnerable to speculative attacks. The IMF and World Bank became the chief proponents of these neoliberal austerity packages. But as governments cut their social expenditures, raised their interest rates, liberalized, and privatized state industries deflationary tendencies emerged and reduced overall demand.

Most manufacturing giants preferred to downsize their workforce in unionized and largely regulated areas of the world economy and transfer these production lines to deregulated places whose docile and suppressed workforce was open to overexploitation. This became a predominant strategy after 1970s, since neither national markets, in profit levels, nor nationally unionized work forces were convenient for the cut-throat competitive conditions of the neoliberal era. Capital sought to find a new way in post-Fordist flexible production systems to restore its profit rates. Below I will look at the nature of post-Fordist production and state alliances within this framework.

The structural constraints of nation-state system and regulated markets forced the dominant sections of capital, first financial, then industrial, to initiate a complete break with Fordist-Keynesianism, which embodied the historical gains of the working class and the obstacles that created the tendency of falling profits in the first place. Fordism symbolized relatively intact and fixed social relationships of production (the controlling dimension). Homogeneous markets for standardized mass consumption products and the concomitant division of labor constellated around the nuclear family led to relatively predictable patterns of social interactions. However, those stable patterns were already under attack by the fiscal insolvency of the welfare state and the growing resistance of capital to subsidize it (Aglietta, 1987).

In the post-Fordist, flexible mode of accumulation, companies have integrated global points of production and consumption into their balance sheets; they have started to be an organic part of companies’ businesses in contrast to international trade of the Fordist years in which the national regulation of accumulation was the foremost priority. These developments were accompanied by a vast surge in service sector employment and the emergence of new industrialized zones in formerly underdeveloped regions of the planet. The increasing reliance on part-time workers, flexible labor contracts, and growing competition among the unskilled unemployed for fewer jobs were also part of the trend. The trend to surpass national regulations put in place during the Fordist era pushed companies to subcontract jobs in regulated spheres to informal firms with nonunionized workforces and even to families and greatly changed the nature of the employer-employee relationship. The consciousness of workers was easily manipulated by those multi-faceted forms of exploitation. Capitalist wage-labor intertwined with feudal patriarchies or coercion within the family with regard to labor practices itself contributed to the disillusioned environment of identity politics (Harvey, 1990).

Finance capital was the first faction of capital to benefit from these conditions; it not only took advantage of euro-dollar markets and other offshore banking institutions to bypass nation-states but also it was innovative in finding solutions to the problem of global accumulation. For example, those financial derivatives and associated debt “products,” though complicated in nature, were used to create fictional credit instruments to smooth out the recessionary tendencies of global markets (Patomaki, 2001).
In the age of finance capital, David Harvey argues that creation of twenty-fourhour trading zones that connect global markets and financial institutions was also a significant attempt on the part of the capital to overcome the time/space problem in search of new profits. This time/space compression synchronized the exploitation of the world labor force and other resources with enormous speed. Electronic trading can shift millions of dollars from one global production point to another in seconds, leaving the subjects of those sudden economic shifts, populations, helpless. This facilitates and quickens turnover rates of capital as companies in the accelerated phase invent new products, whose consumption can be reduced to hours or even minutes. Events or relatively short-lived consumer commodities largely replaced investment in durable goods of Fordist era. In another dimension the speed of accumulation and production rates of capital enormously advantaged big capital over small business, as the processes required the up to minute knowledge of financial and commodity markets (Harvey, 1990).

In order to stabilize the new framework of those new relations of production, the dominant factions of capital entered into new coalitions and constructed new forms of ideological control around the globe after 1970s. Crystallizing with the Reagan and Thatcher governments’ policies and the conservative surge within the Third World, transnational liberalism found fertile terrain in the neoliberal state. The table below from Harvey’s book summarized the sea change within the nature of global capitalism since 1970s.

Thus as Robinson, Gill, and Cox have argued, the neoliberal state has been a byproduct of capitalism’s attempts to emancipate itself from the constraints of national regulation and nationalistic ideological frameworks. Neo-Gramscian’s do not perceive the state in a Weberian sense in which the state is reduced to its administrative and coercive apparatus or its set of political institutions. Notwithstanding the actual practice of state agencies and their powers, the state is also a moment of class power relations, in the Marxist sense, which has a dialectical unity with the actions of state institutions (Robinson, 2003). As Pjil demonstrated, the resurgence of money capital and the emergence of finance capital as the dominant faction in the new post-Fordist era have affected the structure of the nation-state. The consensus around neoliberalism has been generally promoted by these transnational classes, which incorporate some sections of the old Fordist welfare state while radically transforming the nature and tasks of capitalist states (Pijl, 1984).

The Bank for International Settlements, the WTO, G-7, OECD, EU, ASEAN, APEC, and NAFTA are all examples of this process of transnationalization. Every year world corporate, political, and intellectual leaders gather at the Davos economic forum to discuss the problems of the global system. The ideological loyalty of participants to the idea of global neoliberalism has been more important than their territorial loyalties to their respective nation-states. So through the reallocation of crucial decision-making powers to those transnational institutions, global capitalism has shifted the function of policymaking from the nation-state to supranational bodies. Readers should avoid falling into a false dichotomy by perceiving the nation-state as external to this process. As this chapter has explained, changes in the nature of class alliances and the mode of production within national states provided the terrain for transnationalization.

 

This process is continuously underway.

For example, when the IMF imposes Washington consensus policies on Third World countries, those Third World elites, in terms of education and shared social and economic values are not very different from IMF and core country elites. The main aim of these supranational institutions is, as Robinson has argued, to stabilize the social relations of global capitalism in the absence of a global hegemon that can provide collective goods to the systems actors (Robinson, 2003).

Neo-liberalism’s reduction of political economy into technical language, its isolation of economic decision-making bodies from popular pressure, for example central bank autonomy, and separation of politics from economics, as though they are ontologically distinct spheres, have largely resulted with what Bob Jessop called the hollowing out of the national state. Nation-states have been gradually becoming population control centers for global capitalism, as the national capitals increasingly resist financing the social tasks of the Fordist welfare state. The decaying infrastructure, education, and cultural framework of these national social formations in the last three decades has also created enemies of globalization. Nationalist factions of domestic capital have also emerged, which resent their exclusion from the construction of a new global hegemonic bloc. Increasingly there has been a surge of popular anger against the “agentless” globalization trend. While these trends clearly demonstrate that global capital has increasingly broken reciprocity with labor, population control mechanisms of national borders and repressive state apparatuses, coupled with twisted forms of production relations in the flexible mode of accumulation, have still oppressed labor within the constraints of the nation-state. The transnationalization of global capital laid bare the growing objective existence of a global proletariat whose consciousness is distorted by the multi-faceted identity politics of our postmodern era (Jessop, 2002) (Robinson, 2005).

The concept of postmodern used here refers to what mainstream academia discussed the cultural and economic changes of late twentieth century. Since capital must compete to reduce turnover time of their returns from investment through time/space compression, relatively fixed identities, perceptions, and relationships of modernity or Fordism have been unraveled. The ever growing uncertainty and abstract individualism have replaced previous identities, which ideologically fits well with the agenda of global capital that aims to create a radical rupture with old Fordist forms of collective survival.

The contraction of the state from role in education, industry, and social welfare exacerbates the burden of local administrators who primarily aim to increase the competitive edge of their local industries and sectors in the global market place. Local resources were never enough to replace the tasks of national government. In that context populations who are marginalized from formal political institutions seek to identify themselves with alternative concepts. Frederick Jameson and Harvey have argued that the capitalist market actually celebrates these attempts at diversity, which in terms of cultural production enlarge the exploitable area (Jameson, 1991) (Harvey, 1990).

In an ideological sense, the postmodern current in contemporary capitalism, by arguing for the equality of diverse cultural forms and ways of knowing and doing, and the idea of emancipation from the modernity’s meta-narratives, has served two distinct purposes. First, it legitimizes the current human condition by disarming historical explanations and refusing their explanatory power as meta-narratives, and secondly through postmodernist judgmental relativism, it justified the neoliberal state’s depoliticizing of the public sphere. Postmodernism’s agnosticism towards any historical explanation and transformative project about society has achieved the implicit recognition, without problematizing it, of the existent relationships of the capitalist system in which the dominant power of the emerging transnational bourgeoisie tries to create a world in its own image. To borrow some thoughts from the Communist Manifesto, two of Karl Marx’s assertions regarding the human condition in the capitalist system clearly explain why the ideologies like postmodernism and identity politics are so popular against so-called meta-narratives. Marx wrote, after defining the constant revolutionizing role of the bourgeoisie in order to survive in competitive production: “All that is solid melts into air, and all that is holy is profaned, and man is at last compelled to face with sober senses, his real conditions of life, and his relations with his kind” (Marx, 1993: p 46). However, in the context of uncertain, rapidly changing, and seemingly uncontrollable social forces, an individual human being cannot grasp the real nature of what is ephemeral and what is structural with a completely open mind.

Thus, identity politics and postmodernist trends have resurfaced; they are the weight of those “dead generations” in a time of rapid change and uncertainty. Since my project is to explain the rise of political Islam, the emergence of identity politics with neoliberal state forms and class alliances is crucially important.

The resurgence of identity politics is the lack of a material basis for a sound hegemonic project on the part of world capitalism today. It stems not only from the fact that the dominant faction, finance capital, is the most short-sighted faction of capital, but in absence of projects like those associated with the Keynesian welfare state transnational liberalism has engendered very reactionary and opportunist class alliances for the shortterm success of this new capitalist project. Starting from Reagan and the Republicans’ increasing flirtation with Christian right-wing elements within the United States, global capitalist classes have relied on the help of many right-wing forces in the Middle East, including the Taliban, Osama Bin Laden, and the Saudi royal family.

 

Neo-Liberalism in the Middle East and Political Islam

The rise of neoliberal forms of state and policy practices within the Middle East began with the enormous legitimacy crisis of nationalist and Arab socialist regimes immediately after the 1967 defeat by Israel. Not only did import-substitution and social welfare policies in countries like Egypt, Tunisia, Morocco, and Jordan increase their budget deficits, but the political bankruptcy of these regimes in the face of the massive Arab defeat in 1967 further undermined support among ordinary Arab citizens.

The 1970s witnessed, starting with Anwar Sadat’s pro-Western policies in Egypt, a regional overhaul of traditional class alliances based on nationalism and Arab socialism. Sadat got rid of the Soviet advisers of the Nasser era and implicitly supported religious groups like the Muslim Brotherhood against the leftists and Nasserists in Egypt. Increasingly the economic volatility of period forced more Arab leaders to abandon the basic socioeconomic priorities of their respective states. As most of these states began to encourage the formation of a new class of financiers, middleman, and importers, these new classes, who wanted to integrate their national economy into the global economy, tried to break with the previous compromises with the working classes and peasants. This process is still underway, but the pressures from internal and global sources rose as the Thatcher and Reagan governments made the policy prescriptions of the Washington consensus the new economic dogma (Beinin, 2001).

In that nexus between the neoliberal ascension in the West and the legitimacy crisis of nationalism and socialism in the region, new elites and old state cadres found common interests with the West in the wake of the 1973 oil crisis. Oil prices and OPEC’s daring attitude during the embargo deepened the economic bottlenecks of already crisisridden Keynesian–Fordist systems in the West. The abundance of petro-dollars after 1973 largely benefited oil-rich countries, such as Saudi Arabia, the United Arab Emirates, Iran, and Iraq. These petro-dollars provided enormous profit opportunities to Western banks and their Middle Eastern partners. This was also a period of economic deregulation of international finance. Between 1973 and 1981 oil prices increased from $2.00 a barrel to $40.50, resulting in massive construction and development projects in countries like Saudi Arabia, UAE, Bahrain, Iran, and Iraq. The oil-poor countries in the region used this environment to send their unemployed urban poor and some skilled workers into the Gulf region to diminish the effects of massive population pressure on industry and economy.

However, the relatively smoothing effects of the oil-boom on the regional economy was reversed with the 1980s debt defaults of the region’s countries and the strict monetary policies of Western powers during Reagan’s early years, coupled with the drop in oil prices in 1985-86 (Beinin, 2001), (Gause, 1994).

The oil-boom, contrary to OPEC’s initial argument against the West, consolidated the integration of Middle Eastern economies into the global capitalist system, as most countries accepted IMF structural adjustment conditions with the unraveling of oil prices after 1981. Even in countries that do not have oil, the decrease of labor and agricultural export demand from the Gulf region sharply constrained their revenues and increased their unemployment, which naturally resulted in massive budget deficits and IMF bail outs. Structural adjustment policies forced governments to undertake the liberalization of markets, privatization of state industries, massive cuts in social spending, roll back of working class gains, especially in terms of real wage increases, and curtailment of agricultural development projects that had the potential to contain the enormous influx of rural migrants to cities. Those policies created a power vacuum in welfare provision and thus strengthened the hand of Islamic groups as they criticized Arab nationalism and socialism’s failures in administering these societies. State social policies abetted in this process as the neo-liberal bloc wanted to eradicate the gains of the working class and associated leftist forms of collective organizations. While some Islamists are fiercely anti- Western and anti-Modern, their acceptance of the rules of commerce and the profit system made them a potential junior partner for neoliberal elites (Beinin, 2001).In terms of statistical results of neoliberal policies in the region, in Egypt real wages fell 40 percent from 1985 to 1995. Income distribution worsened; from 1982 to 1991 the Gini coefficient rose from 0.32 to 0.38 in the country. The segment of the population under the poverty line rose 30 percent from 1985 to 1990. In Tunisia, the share of the poorest 20 percent of the population in total consumption stagnated around 5-6 percent from 1976 to 1986.

In Turkey after the decade of implementing Washington consensus policies, real wages in the public sector declined by 39 percent and civil service wages declined 13.5 percent. Overall the share of wages in the GDP from 1980 to 1990 dropped from 39 percent to 23 percent. Even in authoritarian regimes such as Syria and Iraq, which did not have agreements with the IMF, the real wages were suppressed and the unionization rates around the Middle East continue to fell after 1980s. The World Bank in 1995 in a rare moment of honesty accepted the fact that decades long neoliberal policies could not increase the living standards of workers in the region. (Beinin, 2001), (Halliday, 2002)

In terms of political and military strategic alliances, the 1970s corresponded to the increasing insecurity of two powers in the region. The United States was plagued with its defeat in Vietnam and the loss of some key struggles in Latin America and Africa against nationalists or the left, the rising domestic economic problems of stagflation, the Iranian revolution, and the Soviet invasion of Afghanistan. Meanwhile, Saudi Arabia was threatened by the Iranian Islamic revolution and Shiite interpretation of Islam.

The geopolitical interests of these two countries revolved around anti-communism and anti-Shiite rhetoric, as the United States also saw the Iranian revolution as a problem for its interests in the region. This spurred a much closer alliance between these two countries. Before the oil embargo, an American oil company, Aramco, was the only explorer of oil in Saudi Arabia. The Saudi elite actually tried to oppose OPEC price hikes in order to not to undermine global economic growth, which the Saudi elite was dependent upon. In that context in the Afghan trap for the Soviets, the Saudis financed the resistance and religious propaganda, while Pakistanis performed intelligence gathering, and the CIA supplied the weapons and training. The Soviet occupation created the perfect opportunity not only for political Islamists like Osama bin Laden. (Gause, 1994).

After that close collaboration in Afghanistan, the Saudis further intensified their efforts to disseminate Wahhabi-style Sunni orthodoxy around the Muslim world and in Western Islamic communities. The Saudi education ministry allocated billions of dollars from oil revenues to pay the expenses religious preachers and to disseminate religious educational materials with the orders of King Faisal. Another of King Faisal’s efforts to spread his ideology consisted of the creation of Islamic financial systems through banking practices that were acceptable to the rules of Sharia.

With petro-dollars coming from Western countries, the Saudi’s launched their Islamic Development Bank initiative both to control the diversion of funds within the Middle East from oil revenues and to create an Islamic alternative to secular institutions like the Arab League. Since interest income is shunned by most Sunni Muslims, these Islamic financial alternatives provided opportunities for Saudi Arabia and also Western banks that dealt with investing oil revenues on behalf of Arab governments (Henry and Wilson (eds), 2004).

First, Islamic financing shifted the emphasis from interest-income-based conventional banking to the equity-financing-based (non-interest) investments. These Islamic funds approached the small business and the middle-class bourgeoisie who had a hard time acquiring large amounts of credit from established conventional financial institutions. In conventional banking the deposits of a bank are invested without too much personal trust or monitoring activity, which somewhat lessen the costs. On the other hand, in Islamic equity financing, the relationship between the bank and the borrower is that of the partners in a business. Islamic banks are promised a share of the profits of borrower’s commercial operation, in case of losses the bank has to bear the consequences. In this type of banking, the most important issue is the trust between two sides, complemented by a lengthy process of monitoring and high costs associated with that process.

Inadvertently, under those circumstances the IMF’s structural adjustment prescriptions, such as reducing the state bureaucracy, increasing transparency in balance sheets of companies, and privatization, are economically more beneficial to Islamic financial institutions than to their conventional counterparts, since less bureaucracy and more transparency reduce the costs of the lengthy monitoring process between the creditor and the borrower (Kahf in Henry and Wilson (eds), 2004), (Warde in Henry and Wilson (eds),2004) .

These kinds of investments with small and middle-class businessmen started a process in which mostly neglected rural and marginal entrepreneurial groups could finally find low-cost credit channels, while the Muslim poor, who despised interest-based banking, also find a new venue for their otherwise dormant savings. From 1973 to the 1990s, there was a proliferation of Islamic banking institutions in the Middle East and North Africa. These Islamic groups benefited not only from IMF packages but also from the political climate of the period. With the declining influence of populist nationalism, governments suppressed the left, while politicians competed to be seen as more Islamic than others, in part by providing tax incentives and special privileges to Islamic groups. For the worldwide transfer of funds, the Islamic traditional system of hawala, which uses a courier for carrying funds from one place to another, transformed into new forms, as Islamic financing became popular among immigrants in oil-rich Gulf States and Western countries. Saudi-style Sunni orthodoxy influenced immigrant workers in the Gulf by embedding them into its local cultural framework. Meanwhile, immigrants in the West were controlled by the Saudi financing of their mosques and social projects. From the late 1970s to 1990s, the success of these Islamic financial institutions correspondingly began to change the political perceptions of pious Muslims from the Sayyid Qutb's understanding of the total political overthrow of infidel governments to a more reformist, gradual Islamization of every sphere of life starting from economy. The devout Muslim underclass became better educated through the Islamic sponsorships as a result of the convenient political and economic climate. This perspective forced Islamic groups to compete with secular institutions in education and to place its loyal members in the important political positions of states (Halliday, 1996) (Henry in Henry and Wilson (eds), 2004).

IMF policies and economic liberalism are congruent with the interests of the Islamic entrepreneurial class. Global capitalism’s market niches and career opportunities have incorporated the Islamic opposition into its global framework. Even after the events of September 11 most of Muslim funds have been either invested in more mature Western markets or directed by Western fund managers. Their criteria of investment and location choices more closely resemble that of conventional banks, emphasizing political and social stability, commercial risk assessment, and rates of return rather than the religiosity of the respective country. And fledging Islamic bourgeoisies also push their political representatives to accept the norms of Western financial and political institutions.

This does not mean, however, there is no opposition, radical groups like Al-Qaeda have become increasingly bitter in terms of their hostility to this Islamic-Western alliance or gradual incorporation of Islamic movements within this so-called infidel system. Since the implosion of the Soviet Union in 1991, when there ceased to be a communist enemy, the marginalized Islamic opposition diverted its anger toward Muslim governments and their Western allies (Warde in Henry and Wilson (eds), 2004), (Halliday, 2002).

Islam as a political ideology accepts the basic tenets of capitalism, such as the sanctity of private property, validity of debt contracts, and the legitimacy of commercial profits. Given the fact that Islamists lack any credible democratic and emancipatory political program, excluded sects could not provide sustainable alternatives. The Islamist opposition, generally, in line with postmodern identity politics, argues for the overthrow of an unjust and corrupt system and its replacement with a state that is governed solely by the rules of Islam. They saw that modern man started to idolize parties, nationalism, socialism, luxurious commodities, instead of god, resulting in the erosion of Islamic social values. This cultural and ideological critique, emphasizing the personal and political mistakes of Muslim ruling elites, ironically fell into the trap of neoliberalism’s separation of economics from politics. Hence, in ignoring the coalescence of interest between neoliberal economics and Islamic entrepreneurs, the main lines of Islamist critique of the modern order lack a substantial understanding of the dialectic unity in reproduction of the socioeconomic processes that they criticize.

We now will explore Turkish political Islam as a microcosm of these general developments regarding political Islam and capitalism.

 

Case Study P.1:

Evolving Turkey P.1

Evolving Turkey P.2

Evolving Turkey P.3

Evolving Turkey P.5

Conclusion and Bibliography

 

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