The Globalization Gamble: The Dollar-Wall Street Regime and its Consequences. By Peter Gowan The 1990s have been the decade of globalisation

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The Globalization Gamble: The Dollar-Wall Street Regime and its Consequences. By Peter Gowan

The 1990s have been the decade of globalisation. We see its effects everywhere: in economic, social and political life, around the world. Yet the more all-pervasive are globalisation’s effects, the more elusive is the animal itself. An enormous outpouring of academic literature has failed to provide an agreed view of its physionomy or its location and some reputable academics of Right and Left even question its very existence. Others, notably Anglo-American journalists and politicians, insist it is a mighty beast which savages all who fail to respect its needs. They assure us that its gaze, ‘blank and pitiless as the sun’, has turned upon the Soviet Model, the Third World Import-Substitution Development Model, the European Social Model, the East Asian Development Model, bringing them all to their knees. For these pundits, globalisation is the bearer of a new planetary civilisation, a single market-place, a risk society, a world beyond the security of states, an unstoppable, quasi-natural force of global transformation.
Yet, as the East Asian crisis turned into a global international financial scare, some who might be thought to be deep inside the belly of this beast, the big operators on the ‘global financial markets’, wondered whether globalisation might be in its death agony. At the start of 1998, Joe Quinlan, senior analyst for the American investment bank Morgan Stanley, raised the possibility that globalisation may be coming to an end. He noted that “globalisation has been the decisive economic event of this decade” and stressed that “no one has reaped more benefits from globalisation than the United States and Corporate America....The greater the velocity and mobility of global capital, the more capital available to plug the nation’s low level of savings and boost the liquidity of financial markets. In short, globalisation has been bullish for the world economy in general and for the United States in particular.” But Quinlan worried that governments in various parts of the world may be turning against globalisation and may decide to bring it to an end in 1998. As he put it: “...the biggest risks to the world economy next year is not slower growth, but rather an unravelling of global interdependence -- and therefore the end of globalisation.”1 For Quinlan, then, globalisation is a rather fragile, vulnerable creature, dependent upon the nurturing care of states.
Thus, we are left with an awareness that there have indeed been powerful new forces in the international political economy of the 1980s and 1990s, which we label globalization, but their contours, dynamics and causes remain obscure: as elusive to our grasp as a black cat in a dark room.2

This essay is yet another attempt to catch this cat called globalization, or rather to catch one of its main organs: its central nervous system. We will argue that this lies in the way in which international monetary and financial relations have been redesigned and managed over the last quarter of a century. This new monetary and financial regime has been one of the central motors of the interlocking mechanisms of the whole dynamic known as globalization. And it has been not in the least a spontaneous outcome of organic economic or technological processes, but a deeply political result of political choices made by successive governments of one state: the United States. In this sense we are closer to the Morgan Stanley view of globalization as a state-policy dependent phenomenon than to the notion of globalization as a deep structure favoured by Anglo-American media pundits. To indicate its location in international reality we call it a ‘regime’, although, as we will explain, it is not a regime in quasi-juridical sense in which that word has been used in American international relations literature.
International monetary and financial relations are always the product of both economic and above all political choices by leading states. Studies of globalization which fail to explore the political dimensions of the international monetary regime that has existed since 1973 will miss central features of the dynamics of globalization. This international monetary regime has operated both as an international ‘economic regime’ and as a potential instrument of economic statecraft and power politics. The name given to it here is the ‘Dollar-Wall Street Regime’ (DWSR). We will try to trace its evolution from origins in the 1970s through the international economics and politics of the 1980s and 1990s up to the Asian crisis and the panic of 98.
We are not going to claim that the history of international monetary and financial relations of the last quarter of a century gives us the key to understanding the contemporary problems in the advanced capitalist economies. As Robert Brenner has demonstrated, these problems of long stagnation have their origins in a deep-seated crisis of the productive system of advanced capitalist societies.3 The onset of this stagnation crisis formed the background to the changes initiated by the Nixon administration in international monetary and financial affairs: but the production crisis did not determine the form of the response. There were a range of options for the leading capitalist powers to choose from and the one chosen, which has led to what we call globalization, was the outcome of international political conflicts won by the American government. Since the 1970s, the arrangements set in motion by the Nixon administration have developed into a patterned international regime which has constantly reproduced itself, has had very far-reaching effects on transnational economic, political and social life and which has been available for use by successive American administrations as an enormously potent instrument of their economic statecraft. One of the most extraordinary features of the whole story is the way in which these great levers of American power have simply been ignored in most of the literatures on globalization, on international regimes and on general developments in the international political economy.4

In exploring this Dollar Wall Street Regime we need no algebra or geometry and almost no arithmetic or even statistics. The basic relationships and concepts can be understood without the slightest familiarity with neo-classical economics. Indeed, for understanding international monetary and financial relations, lack of familiarity with the beauties and ingenuities of neo-classical economics is a positive advantage.
The essay is in five parts. We begin with a brief discussion of terms, concerning the meaning of ‘capital markets’ and the roles and forms of financial systems. In the second part we look at the new mechanisms established for international monetary relations by the Nixon administration in the 1970s. The resulting regime gave leverage both to the US government and to Anglo-American financial markets and operators. One of the fascinating features of the regime is the way in which it established a dynamic, dialectical relationship between private international financial actors in financial markets and US government dollar policy. Most of the literature on globalization tends to take as a governing assumption the idea that the relationship between the power of markets (and market forces) and the power of states is one mainly marked by antagonism -- an idea deeply embedded in much liberal thought.5 Yet, in a seminal article written at the time of the Nixon changes, Samuel Huntington noted how false that idea is: “Predictions of the death of the nation-state are premature....They seem to be based on a zero-sum assumption...that a growth in the power of transnational organisations must be accompanied by a decrease in the power of states. This, however, need not be the case.”6 We try to show how the DWSR, steered by the US government, worked in and on the international political economy and how it latched onto and changed the internal economics, politics and sociology of states and their international linkages.
The third part of the essay looks at the operations of the Dollar-Wall Street Regime over the last quarter of a century. We look at how US administrations have sought to use the regime, and the responses of the European Community states, Japan, the countries of the South and of the former Soviet Bloc to the regime. We also look at how the regime contributed towards changing the US domestic financial, economic and political systems.
In the fourth part, we try to place the DWSR and its effects into the framework of the dynamics of international politics as a whole in the early 1990s. We look at these issues, so to speak from the angle of the lead state: the United States. And we try to build in the effects of the Soviet Bloc collapse on how American leaders formulated their strategic goals and recombined their tactics. I argue that they rationally had to, and did, recognise that their key challenge lay in East and South East Asia. And to tackle that challenge and to frustrate future challenges to US global leadership, they had to radicalise the DWSR and seem to have used it as an instrument of economic statecraft in East Asia.

In the fifth part we argue that the conventional view of the unfolding of the central drama of East Asian crisis in the autumn of 1997 -- the events in South Korea -- is mistaken insofar as it assumes the central actors to have been market forces. The critical role was played by the US Treasury, which acted in quite new ways during the Korean crisis. It was this Treasury intervention in South Korea which was responsible for the subsequent Indonesian collapse and which indirectly and unintentionally set in motion the triggers which turned the East Asian crisis into a global financial crisis during 1998. At the same time, the reason why the US Treasury’s action could play this triggering role lay in the effects of 20 years of US exploitation of the Dollar-Wall Street Regime on the world economy. We conclude by considering whether there is a possible social-democratic capitalist alternative strategy which could reverse the dynamics of globalization.


Most of the various notions of what globalization is about focus on the growing mobility of capital across the globe in the ‘global capital market’ and upon the impact of this mobility on national economies. But the term ‘capital market’ is analytically incoherent, because it embraces radically different phenomena in the field of finance, most of which have nothing directly to do with capital in the usual common sense meaning of the term, while at the same time it excludes a great deal of the operations of what capital actually does. So we need to clarify our notions about ‘capital markets’, global or otherwise, in order to understand this international phenomenon known as globalization.

The So-Called Capital Markets

In common sense language we associate the word capital with the idea of funds for productive investment, for putting together machines, raw materials and employees to produce sellable items. This is a useful starting point for using the word capital because it stresses its socially beneficial role within a capitalist system.

One of the central confusions concerning globalization lies in the widespread belief that the so-called ‘global capital markets’ in which trillions of dollars are bouncing back and forth across the globe are in some way assisting the development of the productive sector of capitalism. It is because we imagine that the ‘global markets’ are integral to production that we imagine that we have no choice but to accept them. Yet in reality the great bulk of what goes on in the so-called ‘global capital markets’ should be viewed more as a charge upon the productive system than as a source of funds for new production. The idea that the current forms of ‘capital markets’ are functionally indispensable investment mechanisms is a serious error. The ‘capital market’ is both much more and much less than the funnel for productive investment. It is much more because it includes all forms of credit, savings and insurance as well as large, diversified markets in titles to future income and not just credits for productive investment. And it is much less because very large flows of funds into productive investment do not pass through the so-called ‘capital markets’ at all.

This confusion about the role of capital markets is linked to another, concerning ‘mergers and acquisitions. Thus, it is often assumed that when one company buys control of another company, some kind of capital investment is taking place. Yet frequently such acquisitions of assets may have nothing to do with new real investment at all, indeed, the reverse may be occurring: the acquisition may be concerned with running down the activities of the acquired asset, in order that the buyer of the asset can eliminate competition and gain greater market power. During the last quarter of a century this process of ‘centralisation of capital’ has been proceeding apace internationally. It is called ‘Foreign Direct Investment’ but in most cases it simply means changing the ownership of companies and may have to do with disinvestment in production rather than the commitment of new resources to expansion of production.
The notion that a great expansion of the size of ‘capital markets’ is a symptom of positive trends in capitalist production is as false as imagining that a vast expansion of the insurance industry is a sign that the world is becoming a safer place. Insurance can operate in the opposite way: the more crime the bigger the property insurance market. Similarly, when great fortunes are being made overnight on ‘capital markets’ the most useful rule of thumb for interpreting such trends is one which says that something in capitalism is functioning very badly from a social point of view. We will explore some of these terms, starting with the most obvious feature of financial systems, their role in supplying credit.
Credit involves lending money to people on the understanding that they will pay the money back later along with a bonus or ‘royalty’, usually in the form of a rate of interest.7 There is nothing necessarily capitalist about credit and large parts of national credit systems are not related to production at all. Workers can put their savings into a credit co-operative and draw loans from it in hard times in the hope of paying the money back in better times. They pay a royalty for the service but this can be small because the co-operative is non-profit-making. Such co-operatives serve consumption needs, not production and they are not capitalist. Building societies confined to the housing market play a similar role in supplying credit for people to purchase housing. A common feature of these kinds of organisations is that the credit-money that they issue is directly derived from savings deposited within them. In other words, their resources come from the past production of value in the economy: employees’ savings come from wages that they have already earned in production.8

Banks are different because they are able to create new money in their credit operations. We can see this when we realise that at any one time, the banks as a whole could be giving overdrafts to everybody in the entire economy. Thus, far more money is circulating in the economy than the money derived from savings generated by past value creation. Part of the money is actually what we can call fictitious money -- money derived not from the past but from expectations that it will be validated by future productive activity.9 Within capitalism, banks also do not have to be operated as private capitalist companies. At the beginning of the 1990s, for example, more than half of the 100 biggest banks in Europe were publicly owned and their financial criteria for operating were, in principle, matters of public choice. And even if they are private, the banks play such an essential and powerful role in the public economy because of their capacity to issue credit money that any sensible capitalist class will ensure that the state is constantly interfering in their operations (even though, for ideological reasons, one wants to keep these state functions ‘low profile’). As Kapstein puts it: “Banks are told how much capital they must hold, where they can operate, what products they can sell, and how much they can lend to any one firm.”10
The existence of this fictitious credit money is very beneficial for the whole economy because of its role in facilitating the circulation of commodities. Without it, economic development would be far slower. It is especially important to employers, enabling them to raise large amounts of money for equipment which will yield up its full value in production only over many future years. If employers could invest only real savings -- the money derived from past value-creation -- investing in fixed capital would be far more costly --too costly for a lot of investment. And credit has also become a very important means of expanding the sales of goods to consumers. This is another way of saying that modern economies run on large amounts of debt. So the banks do play an important role in both channelling savings and creating new funds (fictitious money) for productive investment. An entire capitalist economy could be run with a financial system consisting entirely of such banks.
But historically, other forms of financial institutions have grown up, especially in the Anglo-Saxon world which has played such a central role in the historical development of capitalism. First there has been the development of shares and bonds as means of raising funds. A company can offer shares for sale and use the funds from the sale to invest in the business. The shares are pieces of paper giving legal titles to a claim on future profits from the company’s activities. Companies or governments can also sell bonds and use the funds from the sale for an infinite variety of purposes. These bonds are similarly pieces of paper giving legal titles to a fixed stream of future income to the holder for a fixed period of time. A special feature of shares and bonds (known collectively in England since the 18th century as ‘stocks’) is that secondary markets have grown up enabling people to buy and sell these pieces of paper entitling the holder to future royalties. Today there are all kinds of pieces of paper that can be bought and sold and that entitle the holder to some kind of future royalty or right. I can buy and sell paper giving me the right to buy or sell a currency at a certain rate at a certain time in the future. There has been a huge growth in markets for such paper claims. The generic term for all such tradeable pieces of paper is ‘securities’.

It is important to recognise that while the initial issuing of a set of shares or bonds is a means of raising funds that may (or may not) be used for productive capital investment, the secondary markets in these securities are not contributing directly at all to productive investment.11 Instead the people on these markets (such as the Stock Market) are buying and selling claims on future value created in future productive activity. They are not handing over funds for that productive activity; they are claiming future royalties from it. These claims on future royalties from future production are either direct or indirect claims. A share in Ford Motors is a direct claim on future value created in Fords. A Russian government bond which I hold is an indirect claim on future Russian production of value. I hold the bond not because I think the Russian government will produce the value but because I imagine that it will pay me my royalty by extracting taxes from the productive activity of others in Russia: no production, no royalty on my bond.
Against this background, we can now return to the phrase ‘capital market’. What is mainly (although not only) referred to by this phrase is actually securities markets. And we thus discover that ‘capital market’ in the sense of a securities market may have nothing directly to do with supplying funds for capital investment. It may have to do with the opposite process: trading in claims to draw profits from future productive value-creation. At the same time, both bank credits and bonds may be used for capital raising functions but they may equally be used for other purposes. And neither foreign exchange markets nor the so-called derivatives markets have anything directly to do with capital investment -- we will examine later what their functions are.
How could such an apparent abuse of language, whereby various kinds of financial markets are all described as capital markets, occur? The answer is that it is not an abuse of language for one group of the population: rentiers and speculators. Rentiers are those who derive their income from extracting royalties from future production. The speculators are those who derive their income from trading in securities or currencies by trying to sell them at higher prices than they bought them for.
As has been implied by our analysis, rentiers are not, in principle, an integral element in capitalism. Those parts of the system’s reproduction which necessarily involve the channelling of funds of money from past value-creation and from credits in the form of fictitious money could be handled entirely by commercial banks (which could themselves be publicly owned).
Thus, when we examine the growth of the so-called ‘global capital markets’ we will find that much of their activity is not about the supply of capital for productive activity. It is about trading in royalties on future production in different parts of the world or about businesses engaging in various kinds of insurance against risks. And the trend in the organisation of the flows of finance has been increasingly one which privileges the interests of rentiers and speculators over the functional requirements of productive investment. This fact is revealed through an examination of the tensions between what we may call the two poles of capitalism, that of money-dealing capital and that of the employers of capital in the productive sector.

The Two Poles of Capitalism and Their Regulation

Whether the financial system is organised predominantly in the form of commercial banks or in the form of securities markets, we notice a division which is inherent in capitalism: the division between money-dealing capital on one side and productive capital on the other. These two entities have different kinds of concerns because of the different circuits of their capitals. For the employer of capital in the productive sector the circuit runs as follows: capital starts as money (some of which is borrowed from the money-capitalist), which is then turned into plant, raw materials and employees in the production process. The capital then emerges from production as a mass of commodities for sale; when the sale is completed capital re-appears in the form of money with the extra-surplus extracted from the production process. Out of this extra surplus, the employer of capital pays back the money-capitalist the sum initially advanced, along with royalties.

But from the angle of the money capitalist, the circuit looks different. It starts with a fund of money. This money is then locked into a project for a certain time. At the end of that time, the money capitalist hopes to get the money back with a royalty. For the money-capitalist absolutely any project which will offer a future royalty is what capitalism is all about. If buying a share in Fords gives a royalty of 6% in a year, while a Ukrainian government bond will give a royalty of 34% and buying a case of Chateau Lafite to sell it in a year will yield 15%, the problematic is the same for the money capitalist in each case: in an uncertain future, which of these different ‘capital markets’ will give me the best mix of safety and high yield?
Property that can be used as capital thus appears simultaneously in two polarised embodiments: on one side stand the money capitalists controlling enormous accumulations of funds; and on the other side stand the employers of capital managing the enterprises. These are two forms of the same thing, analogous to God the Father and God the Son. But their polarisation is very important because it enables money capital as the controller of funds to play a planning role in capitalist development. By being distanced and relatively autonomous from the employers of capital in the productive sector, the money-capitalists can pick and choose what sectors they advance money capital to. If a branch has reached ‘maturity’, barely achieving the average rate of profit, then resources of value from that sector as well as fictitious money can be advanced to other sectors which seem likely to produce higher rates of return. Through such redeployments, the financial system in the hands of the money-capitalists is supposed to spur growth.

For supporters of capitalism this development co-ordination role of the money capitalists is considered to be one of the most ingenious and beautiful aspects of the entire system. One might say that the relationship between the productive sector and the financial sector is one where the productive sector is determinant but the financial sector is dominant. The productive sector is determinant because it produces the stream of value out of which the money-capitalists in the financial sector ultimately gain their royalties, directly or indirectly. On the other hand the financial sector is dominant because it decides where it will channel the savings from the past and the new fictitious credit money -- who will get the streams of finance and who will not. The actual power balances between the two sectors are partly governed by the business cycle. In the boom productive capital is flush with cash and can, so to speak dictate terms to the money capitalists; but in the recession the money capitalists become ruthless, bullying tyrants as the employers of productive capital beg for credit to tide them over. But power relations between the two are also crucially affected by institutional design -- by the social relations of production. The state, through a highly charged and politicised process, can and does tilt the balance between the money-capital pole and the productive capital pole and between the money-capital pole and all parts of the credit system, keeping, for example, money-capital out of whole sectors of the credit system, if it wants to. The state also makes crucial decisions about the internal structure and inter-actions within the money-capital pole itself. What will banks be allowed to do, and what will they be kept out of? Will we have a private securities market or not? And so on. And we must also remember that the state is not just designing relations between the two poles of capital; it is also designing its own relation with the financial pole because it too will wish to use the credit system.
From our analysis of these two poles of capital, another very important distinction emerges, between the tempos and rhythms of two kinds of financial flows linked to the two different kinds of circuits. For the money capitalist there is a tendency to seek quick returns and to keep capital in as liquid a state as possible, for reasons of safety. The employer of capital seeks to set up much longer-term circuits, particularly concerning funds for fixed capital investment, which yield their full value only over many years. The tendency for the first group is thus to generate ‘hot money’ flows, extremely sensitive to even very small changes in their environment; while the second group tends to generate cold, long flows which have to be robust to significant changes in their environment. The hot flows are linked to royalty seeking from either securities trading or from very short-term loans. This difference is extremely important when we seek to analyse international movements of funds. Insofar as all kinds of money can flow freely internationally, we would expect to see very radical differences between these two kinds of flows: a small change in the exchange rate of one country or in the short-term, government-fixed interest rates in another can produce sudden, major shifts in flows of hot money, but exert no significant influence on flows of funds concerned with real, long-term investment in production.12
The relationship between capital and labour within the productive sector is, of course, an absolutely fundamental social relationship in the functioning of any actual capitalist system. But the relationship between money-capital and the productive sector is another absolutely central social relationship. Some of the sharpest conflicts within capitalist societies have occurred around these social relationships between the financial sector and the rest of society.
At the end of the war, politics in the Atlantic world was governed by forces who favoured what the neo-liberals call ‘financial repression’ and what Keynes approvingly referred to as ‘euthanasia for the rentiers’. The story of the last quarter of a century has been that of the resurrection of the rentiers in a liberation struggle against ‘financial repression’. This has gone hand in hand with the idea that the approach to the design of financial systems championed by people like Keynes and the US occupation regimes in Germany and Japan after the war -- ‘financial repression’-- is an approach alien to genuine capitalism, apparently of Far Eastern origin! These debates concern not only the institutional-power relations between money-capital and the employers of capital but also the role of the state and the forms of class relationships across the entire society.

But to understand this whole story we must appreciate that these social and institutional design issues are not necessarily resolvable at a purely national level. It is actually an activity also of the inter-state system, insofar as funds can flow more or less freely from one national currency zone to another. For the money capital pole plays its role only through acting as money. And insofar as the currencies of states are more or less freely convertible by private economic actors into the currencies of other states, financial relations in one capitalist society can be subjected to powerful influences from the financial sectors of other capitalist states.
The transformation of the relations between the money-capital pole and the productive sector of national capitalisms has been a central feature of what has come to be known as ‘neo-liberalism’ over the last quarter of a century. But this transformation has been achieved in close connection with profound changes in the field of international monetary and financial relations. Against this background, we will examine the international monetary system and how it relates to international and national financial systems.
The International Monetary System

The need for an international monetary system is not, in itself, something derived from capitalism. It arises from the political as well as economic fact that the world is divided into separate states with separate currencies and from the fact that groups within one state wish to do business with (and inside) other states. Historically, most of that international business has been concerned with trade in goods. The problem of international monetary relations arises in the first place over how two groups in different currency zones can buy and sell goods. One obvious way of handling this problem is to use neither of the currencies of each state but instead to use a third form of money, say gold, which has an exchange price with each of the two currencies. Alternatively, there may be an established exchange rate directly between the two currencies and the seller of the goods may be prepared to accept payment in either of the two currencies, etc. The important point, for the moment, is simply that some sort of international monetary system is necessary for the functioning of an international economy.

These exchanges in the international monetary system are monitored closely at an inter-state level to answer one important question: are the economic operators of a state buying more from other states than they are selling to other states? In other words, what is a state’s so-called balance of payments in current transactions? Is the account in surplus or in deficit? These questions are important because if a state is heavily in deficit people start to wonder whether it will be able, in the future, to find the internationally acceptable money that it will need to pay all its international obligations. Does a deficit state have enough reserves of international money to keep paying off its deficit? Can it borrow internationally acceptable money from somewhere to keep meeting its obligations? The more such doubts grow, the more the economic operators within the state concerned can face difficulties of one kind or another.

But this system is not a ‘natural’ or a purely economic one. It is both economic and political. The whole concept of the balance of payments rests on the political division of the world into different states with different moneys. The arrangements for establishing acceptable forms of international money are also established by political agreement among states. And the treatment of countries with current account deficits or surpluses is also politically established. Should there be an arrangement whereby states with current account deficits cut back on their purchases from abroad to get rid of their deficits? Or should the surplus states be pressurised to buy more from the deficit countries? Arrangements of either sort can be put in place. If the deficit countries must adjust, that will have a depressive effect internationally, because they will cut back on their international purchases. If the opposite approach is used, it will have a stimulative effect on international economic activity.13 Which approach is adopted will depend upon international political agreement between states over the nature of the international monetary regime that is to operate. And this agreement will not be one between equals. The biggest powers, or perhaps even one single big power, can lay down what the regime will be. All the other states will be ‘regime takers’, rather than ‘regime makers’.14
The Bretton Woods Regime for International Monetary and Financial Relations

The concerns of Keynes and Dexter White in their efforts to construct a new international monetary system for the post-war world were to construct arrangements which would privilege international economic development. This required a predictable and stable international monetary regime that would be rule-based and would not be manipulable by powerful states for mercantilist advantage.

They therefore retained gold as the anchor of the system -- a money separate from the currency of any nation state. And they laid down that the dollar would have its price fixed against gold. Other states then fixed their currency prices against the dollar and were not allowed to unilaterally change that price as they pleased. Changes in currency prices would be settled co-operatively between states through a supranational body, the International Monetary Fund. The result of these arrangements was that economic operators enjoyed stability in the prices of the main currencies against each other since all were fixed at a given price against gold. In practice, the dollar was the main international currency in use for trade, but its exchange price was fixed like that of any other currency.
The second major feature of the Keynes-White system was that it largely banned private financial operators from moving funds around the world freely, giving the central banks of states great powers to control and prevent such financial movements. Private finance was allowed to transfer funds for the purposes of financing trade. There was also provision for funds to be moved across frontiers for foreign productive investment. But other movements of private finance were to be banned: ‘financial repression’ on an international scale. Such repression then meant that investment resources would be ‘home-grown’ within states. And it also meant that money-capital had to confine its royalty-seeking operations to those activities which its nation-state would allow. In other words, states were able to dominate and shape the activities of their financial sectors in ways that would suit the state’s economic development goals.

This system seems to have worked very well, in terms of its growth record, even when most of the currencies of the advanced capitalist states were not even freely convertible with each other for current transactions (as was the case in Western Europe up to 1958).15 But the regime was dismantled in the early 1970s by the Nixon administration, which thereby set the world economy on a new course. 16

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