by Paul Sutton

The international system is in transition from a neo-liberal world order dominated by the USA to a neo-mercantilist world disorder in which major states compete for economic and political power. The transition is not yet complete so there is evidence of neo-liberal forces within and between countries as at the same time neo-mercantilist forces increasingly show themselves at work between and within states and now begin to shape the international agenda.

Neo-liberalism became entrenched and dominant under US leadership beginning with the Reagan administration in 1981. It was characterised by unfettered free markets and the dominance of global finance under the leadership of the US which acted as hegemon. That is the US exercised its dominant political and military power to shape a world order through globalisation in which the US dollar and US multinational corporations were predominant and in which global institutions such as the International Monetary Fund (IMF), the World Bank and the World Trade Organisation (WTO) acted to preserve US hegemony. With the collapse of the Soviet Union in 1991 US hegemony emerged largely unchallenged and continued to be so until the financial crisis of 2007/8. International relations between states were marked by economic competition for bigger and freer markets to promote capitalist economic growth.

NEO-MERCANTILISM 

The financial crisis was in main part resolved by US action in concert with action by the European Union (EU), United Kingdom (UK), and China. The use of state power to solve the crisis in favour of finance, such as the bailing out of the global banks, showed the continuing importance of state power. The essence of neo-mercantilism is the combination of state power and economic power to deliver wealth and security. State power is shown in the ability of any state to grow its domestic economy in comparison with others and to resist domination by a combination of military, political and economic actions at home and abroad to preserve its freedom of action and enhance its prosperity. 

The period since the financial crisis has been marked by the emergence of China onto the world stage to compete with the US for future hegemonic leadership, the resurgence of Russia under Putin and the increasing power of other states such as India. US power has been challenged and has led to the US adopting an increasingly neo-mercantilist set of policies demonstrated in the MAGA slogan of the Trump administration – Make America Great Again. To do this Trump adopted protectionist measures to reduce the impact of foreign trade and investment in the USA while seeking to preserve the freedom of US capital to profit overseas. Biden has further developed this in his policies to promote US domestic production in critical areas –so called Bidenomics - which has used state finance to promote US manufacturing in key areas – some US$53 billion to promote the domestic manufacture of computer chips alone. In so doing Biden has followed Trump in seeking to promote the creation of strategic global value chains between the US and selected allies such as the UK, Germany and Japan. This is an attempt to contain the current global value chain system – the system where international production is broken down into activities and tasks carried out in different countries and co-ordinated by multinational corporations. COVID showed the vulnerability of the US and other major developed economies to this system as shipping contracted, especially with China. In 2018 two thirds of China’s exports to the US were organised by international corporations.

At the heart of these developments has been an attempt by the state to capture the shift in world productive forces unleashed by the fourth industrial revolution – the so-called digital revolution which has prioritised the computer and computer chip and the development of software to enhance production such as robotics and AI (Artificial Intelligence). This has been complemented by the search for rare earths to maintain such developments in mobile phones and batteries in addition to existing concerns for access to oil and gas and uranium to maintain energy supplies and traditional patterns of manufacturing. Technical forces of production have been enhanced by growing commitment to research and development, which is still led by the US but in which China is catching up fast.

CHINA AND THE DEVELOPING WORLD 

In recent years the actions of China and the US have both increasingly sought to do this at home, to either maintain predominance in the world as in the US or seek to overtake the US as in the case of China, seen in particular in the Belt and Road Initiative (BRI) launched in 2015 to extend China’s influence throughout the world through finance and infrastructure development which is especially evident in developing countries. Some 150 countries are part of the BRI and more than US$ 1 trillion have been invested or borrowed to support mainly energy and infrastructure projects. This collapsing US hegemony – in 2015 25% of global manufacturing value added was in China as against only 18% in the US - and growing neo-mercantilist contest is seen in growing world disorder. This includes the many minor proxy wars being fought as well as a probable future major war between larger powers.

Where do developing countries fit in this picture?  A word of caution and again it concerns China. China is characterised in the IMF, the World Bank and the WTO as a developing country. When statistics are given for production in the developing world, its share of world trade or investment or whatever includes China. Measured in this way developing countries have shown major gains in recent years – take China out and things begin to look very different.

The World Economic Report 2023 published by the IMF in October reports very different economic performances among the developing countries. The 46 least developed countries, 33 in Sub-Saharan Africa and Asia, continue to languish with the number of people living in extreme poverty (less than US$ 2 per day) increasing from 75 to 95 million in the last two years. By contrast some growth has returned to middle income and emerging economies. Twenty of them are considered as progressing and include Brazil, Russia, India, China and South Africa. These are the so-called the BRICS and they have emerged as the principal challengers to US power and hegemony in the developing world.

BRICS CHALLENGE 

The BRICS today contain 42% of the world’s population. They are the major powers in their regions. In the last 20 years they have seen their share of world Gross Domestic Product (GDP) rise from 8% in 2001 to 26% today. By comparison the share of global GDP by the economically developed and powerful in the G7 (US, UK, France, Germany, Italy, Canada and Japan) has fallen from 65% to 43%. At their summit this July the BRICS expanded their membership for the first time since they were formed in 2009/10 to include Argentina, Egypt, Iran, Ethiopia, Saudi Arabia and the United Arab Emirates. (1) This has expanded their geographic representation to include the Middle East and increased their economic and political weight.

The BRICS have challenged some of the pillars of US hegemony. They have formed their own development bank to challenge the World Bank (US$ 33 billion committed on 100 plus projects), set up a mini-IMF - the Contingent Reserve Arrangement - to support their central banks in any financial crisis encountered by them, and explored ways to develop their own currency to challenge the US dollar. These are as yet only minor challenges but they are a sign of things to come and have followed attempts by the BRICS to reform the World Bank and the IMF in the interest of developing countries that were previously rebuffed by the US and others in the G7. As such the emergence of the BRICS has been welcomed by developing countries who remain weak and underdeveloped and by those who have been marginalised or otherwise ignored, such as Cuba. Forty countries applied to join the BRICS at its recent summit.

While the BRICS are challenging the US it is difficult to see them taking any real collective cohesive action to force major changes. They remain divided among themselves – especially India and China – and within them China remains dominant (70% of their GDP and 69% of their trade). But they are all believers and practitioners of neo-mercantilism and so committed to developing the growing neo-mercantilist world disorder.

To sum up. The International system is in transition from a global neo-liberalism to a more state centred neo-protectionism. Competition between states is increasing and the chances of conflict between them increasing as they individually search for wealth and power. The key dynamic in this system is the weakening hegemony of the US and its allies and the growing strength of China and its allies in the other BRICS. The US which built China up in the 1980s, 90s and 00s is now trying to pull China down.

Will the US succeed? In the 1970s the US was said to be in decline and faced challenges to its hegemony from the Soviet Union and the economic growth of Germany and Japan, as well as from some of the oil rich developing countries. It overcame this through neo-liberal globalisation. It is now facing decline again which it is attempting to combat through neo-mercantilist polices to deliver strength through promoting 4^th industrial revolution manufacturing and services at home as well as trying to prop up elements of the neo-liberal economic order which favour it abroad, notably underpinning finance capital. But neo-mercantilism is also the strategy of its competitors. They are many and the balance of power and wealth is tipping in their favour. The US has chosen to confront the strongest of these which is China. It is said that as a result we have a new Cold War but power and wealth is now more diffuse so the outcome is more uncertain and the prospects of system breakdown into war that much greater.   

THE UK 

Where does the UK fit in to all this? Rachel Reeves, the Shadow Labour Chancellor of the Exchequer, told the Labour Party conference in October 2023 that “globalisation as we once knew it is dead”. Earlier, in May in Washington D.C., she outlined Labour’s economic policy as ‘securonomics’. This, she said, was a policy to deliver economic security and resilient industry in an uncertain global economy. In her own words: “It shows how an active strategic state will work in harmony with vibrant and open markets”. A better description of the current mix of neo-mercantilism and neo-liberalism by the US to secure its hegemony could not be found. UK international economic policy is the same as US policy confirming that a future Starmer led Labour government will sign-up behind the US as its junior partner. No change there from what we have now.    

What should socialists do in confronting such developments. At the heart of neo-mercantilism is the build-up of state power through technological and industrial growth at home.  Action thus needs to be taken first at home. Against whom? Quite simply, those in state power who promote the system and that is the ruling class on behalf of the capitalists who most benefit from it. In short, traditional action against the ruling class and those profiting directly from it in the capitalist system. If enough action is taken in the major countries the system is weakened and an alternative more cooperative international system can emerge.

(1) Since this agreement Argentina has elected a new right-wing President, Javier Milei, whose foreign policy spokesperson has stated that Argentina will not now join BRICS.

 

Donald Trump campaigning under the slogan Make America Great again pic by Micheal Candelori