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John Lloyds article is helpful, above all, in revealing more fully his
forms of thought. He appears to think my article was a piece of Marxist
economics. Unfortunately it was entirely pre-theoretical: an attempt to
introduce the claims of neo-liberals like Lloyd to some pertinent facts,
with the aid of standard techniques of policy analysis.
Thus, my article included a refutation of Lloyds earlier central justification for Shock Therapy: his rather aggressively asserted claim that neoliberal institutional engineering is needed in Eastern Europe because we
live in a world dominated by globalized production.1 My criticism was
simply based on published oecd research indicating that Lloyds globalized production stagnated during the 1980s. unctad research covering the 1970s as well suggests a decline in such production. Milton
Friedman has also attacked the brand of globalization ideology which
Lloyd espoused.2 So has Lloyds own former newspaper, the Financial
Times.3 Attempts to dismiss all this as Marxist economics wont do.
Lloyd now says my criticisms on this point are worth refuting. But he
doesnt refute them. He thus lets his earlier justification for Shock
Therapy pass.4 He tries to explain away his silence by saying the matter
was not central to my argument. True, but it was central to his earlier justifications for the miseries of millions who have lived through Shock
Therapy, or what Lloyd prefers to call Economic Reform, in the first half
of the 1990s.
Lloyd is upset because I suggest only at the end of my article that the
concept of imperialism should be explored for understanding the facts I
have laid out. He portrays me as if, at the end of a civilized discussion on
1 John
Lloyd: How to Make a Market, London Review of Books, 10 November 1994. This
article attempted to ridicule those on the Left who failed to appreciate the supposed reality of globalized production.
2
See Milton Friedman, Internationalization of the us Economy, Fraser Forum, February
1989.
3
See Martin Wolf, The Myth of the Global Economy, Financial Times, 13 February
1996.
4
But he does shift his ground: in his earlier article he said we live in a world of globalized
production. Now he claims that he said we are moving towards a world of globalized production. Although I cannot welcome this as a representation of his earlier position, I do
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For, as Lloyd also wrote: From being a system as far as possible impervious to foreign intervention, the Russian government has become one of
the most porous in the world.5 This was Lloyd back in early 1992, a long
time ago. Since then, much has changed not only in Russia but, it seems,
also in Lloyd.
I will return to the issue of imperialism below. I will also look at salient
features of Lloyds own neo-liberal thought. But first I will take up the
few, rather peripheral criticisms Lloyd makes of my analysis of what is
usually called Shock Therapy (st).
I. Lloyds Critique
I argued that st was not principally concerned with either helping or
harming economic activity. Nor was it about introducing capitalism as
such. Its aim was to engineer sweeping institutional changes in the
internal structures of these political economies to open them up to maximal Western penetration and influence.6 We can all speculate on the
long-term consequences of this intervention and we can debate the
extent to which the West has succeeded in attaining its institutional
goals. But what I insisted upon was that the implementation of this policy did immense, unnecessary damage to economic life in the whole region
during the first half of the 1990s.
The main forms of damage can be briefly summarized:
applaud it as a retreat from his earlier view.
5 John Lloyd, Comrades in Monetarism, London Review of Books, 28 May 1992.
6 It was, above all, a us government policy backed by the uk and, in large part, by the
German government. The French government resisted it but was defeated and the Japanese, who would undoubtedly have rejected the economic rationale for it, kept as far out of
the whole business as it could.
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launched. Lloyd says that I failed to mention the burden that the absence
of banking and financial sectors placed on the new governments. Im
afraid he missed my remarks on this subject (pp. 14, 323). But he gives
me the opportunity to repeat them: to launch st in such conditions was
inexcusable economically but it was central to the institutional engineering desired by the supporters of st. Without a developed credit system
to tide over enterprises facing collapsing domestic markets, the state
enterprises could seek only one path to salvation: linking up with
Western private capital through privatization into Western hands. The
architects of st must have been very well aware of this. At least Lloyd
was, back in early 1992, as the Russian st programme began to bite,
when he reported that fundamental change may now be beginning as
enterprises run out of credit.10
5. The West wanted to lend more but there were no projects to spend the
money on. Lloyd says the head offices of the imf, wb and ebrd wanted to
disburse more funds for projects but were unable to find suitable projects. This is true, and he thinks it catches me in a contradiction. But
that is simply an example of Lloyds neo-liberal blinkers. There could
have been any number of projects for developing public infrastructures
and modernizing state enterprises. But the imf/wb were against any such
projects. They wanted only projects involving private capitalist development. That is why finding projects was hard work. As for the ebrd,
Atallis initial conception and desire was for it to engage in just such big
public infrastructure projects. But he was blocked by the us and then
levered out of the bank altogether by the Anglo-Americans. And, while
he was in charge, he faced us-dictated terms of reference which made it a
miracle he found any projects to fund at all: the overwhelming bulk of
ebrd funds had to be for the private sector and to be on commercial
lending terms; but at the same time, the ebrd was not allowed to lend to
any projects that could be funded by Western commercial banks!
6. Picking winners. As I explained in my article, the most damaging,
unnecessary cost of st was the shattering of the regional network and the
creation of deep dependency structures between isolated Eastern economies and very powerful and highly mercantilist Western forces. The second unnecessary damaging feature was the domestic slumps demanded
by the imf. I went on to explain the debating tactics of the supporters of
st. They invite us to ignore the slump and its causes and to ignore the
micro-economic damage and choose between the different countries
growth rates as they emerge from the slump.
I am gratifyingly proved right by Lloyds response, for he precisely asks us
to choose between Poland and Romania or Hungary. I wrote (p. 55) that
Romanias growth rate should not be erected as some sort of superior strategy to that of Poland. Since 1989 the Romanian people have probably suffered more than the Poles. I went on to say that Poland and Romania had
one thing in common: they lacked Hungarys crippling debt burdens
Poland, alone in the region gaining a big debt reduction. The second point I
made was that the differences in growth rates after the slump could not justify any claims for the superiority of the st strategy of open-door
10
Ibid.
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that state. Lloyds reply assumes two models of imperialism: the juridical
imperia of the West European powers in the first half of the century; and
the German domination of Europe in the 1940swith its quislings.
Both these models have in common imperial expansion via military conquest. The imperialisms of Britain, France, Belgium, Holland, Portugal
and Spain had the further feature that they usually abolished the juridical sovereignty of the dominated people.
The American imperial form is very different. Samuel Huntington brilliantly captured it as follows in an article back in the early 1970s.
American expansion has been characterized not by the acquisition of
new territories but by their penetration . . . The expansion of the American operational empire has thus not been incompatible with the multiplication of national sovereignties in the Third World. Indeed, in some
respects, the multiplication of sovereignties has facilitated the growth of
American transnational operations.12 Lloyd cant grasp this: he evidently thinks you have either imperial domination or juridicially sovereign states with democracy and the free market.
Huntington goes on to explain that the formal mechanism for this imperial expansion was agreement by the target government to provide access
to its territory for various American public and private business organizations. In Huntingtons words: Western Europe, Latin America, East
Asia, and much of South Asia, the Middle East and Africa fell within
what was euphemistically referred to as the Free World, and what was
in fact a security zone. The governments of countries within this zone
found it in their interest: a) to accept an explicit or implicit guarantee by
Washington of the independence of their country and, in some cases, of
the authority of the government; b) to permit access to their territory to a
variety of us governmental and non-governmental organizations pursuing goals which those organizations considered important... The great
bulk of the countries of Europe and the Third World . . . found the advantages of transnational access to outweigh the costs of attempting to stop
it.13 This captures well the situation facing East Central and East European governments in the early 1990s. They desperately needed access to
Western goods and capital markets, and the us government ensured that
the condition for such access was opening up their domestic arrangements to what Huntington calls penetration.
Soft Imperialism
But to understand the current forms of us expansion we must go beyond
Huntingtons analysis and accept the concepts of what Susan Strange has
called structural power14 or as Joseph Nye, Director of the Center for
International Affairs at Harvard, prefers to call it, soft co-optive power.
This is about creating rules and institutions within and around target
states that have the effect of getting the leaders of these states, in Nyes
words, to want what you want.15 As Nye puts it: if the dominant state
12 Samuel
can establish international norms that are consistent with its society...if
it can help support institutions that encourage other states to channel or
limit their activities in ways the dominant state prefers, it may not need
as many costly exercises of coercive or hard power in bargaining situations.16 In Nyes view, in the post-1989 world, possession of this soft cooptive power is just as important as hard command power. He adds that
the ability of the dominant power to develop and use multilateral institutions may be more important today than force.17
Nye cites in particular the co-optive power which us leadership of the
institutions governing the international economyhe mentions the
imf and the gatt in particulargives it. Lloyd seemed to grasp these
points in 1992, but now it appears that he has forgotten them.
The problem which the us faced in Eastern Europe was to implant institutional structures and rules within the states of the region that would,
once in place, make the leaders of these states want what the us wants.
These include foreign investment regimes, trade regimes, statemarket
relations, appropriate freedoms for tncs, appropriate tax regimes, minimalist welfare states, deregulated financial markets, fully convertible
currencies, the absence of foreign-exchange controls, privatized utilities,
appropriate regimes for mass communications, appropriately organized
stock markets, the right kinds of definitions of intellectual property
rights and the appropriate forms of corporate property and governance,
appropriate forms of domestic ideology and politics, and so forth. In my
article I referred to these goals as the regime goals of the usa. Nye does not
mention the fact that these institutional structures must ultimately be
underpinned by distinctive social structures such that the dominant
social class will experience huge gains, as they have, paradigmatically, in
Mexico. These were the goals of Shock Therapy. These are the bottom
line. They are about ensuring that us power is strengthened in its dominance into the next century. It is what we might call, if you will pardon
the pun, neo-classical imperialism. This is the way the capitalist world
works: through empires of different species, rising and falling. Surely
Lloyd is aware of this.
There are, of course, many other issues of debate on imperialism. Some
may prefer the term hegemonythat is, dominance in the state hierarchy and world economy, but this concept, though necessary, is insufficient: it excludes the elements of strategic control and territoriality
contained in the concept of imperialism. Others may demur at my
emphasis on the us, arguing for a more inclusive g7 actor, but I do not
have the space to elaborate on these issues.
In the original article I tried to spell out some of the main mechanisms of
imperial enlargement in Eastern Europe in the early 1990s. Lloyd simply
ignores the substance of this discussion, attempting to claim that talking
about these power resources and the mechanisms of their use is a symptom of a fevered Manichean paranoia on the Left about good versus
evil. This is a pity, because Lloyd could, given his experience as a
16
17
leading insider correspondent in the region, provide a wealth of material that would enhance our understanding of these mechanisms.
Nevertheless, we already understand a great deal about these political
mechanisms through the work done by American scholars and others on
the politics of structural adjustment in the Southespecially in Latin
America.18 Barbara Stallings stresses three mechanisms of transmission
of external influence: markets, linkage and leverage:
1. Markets: if target states are failing in international goods and capital
market performance they are vulnerable to external pressure. This was
an overwhelming problem for East Central European states once their
regional economic network collapsed, given the Cold War barriers to
their entry to Western markets and their debt problems. It was less of a
medium-term problem for Russia because of its export-earning capacity.
2. Linkage: this refers to the tendencies of domestic groups within the
target state to identify with the interests and outlook of the Western
actors. In the Eastern Bloc, the first such groups were intellectuals captivated by the beauty and elegance of neo-classical and Hayekian economics and offered handsome encouragement from the United States. Garton
Ash has chronicled the vigour of us help in this area in the 1980s.19
Some of these intellectuals were true believers in what Lloyd has called
the new gospel and what the nlr called the cargo cult. The honest and
ascetic Leszek Balcerowicz is surely archetypal here. Others were ambitious young people. And yet others were communist intellectuals seeing
what was happening and desperate to gain new credentials: the cynical
cargo cultists, in Lloyds phrase. But the second group was, through
slower to move, far more socially weighty: that large minority in the
region who could hope to become the new propertied class. In East
Central Europe they have come to see the Western powers and institutions as their champions and hoped-for future protectors through incorporation into Western institutions. This linkage has been much weaker
in the case of the aspiring capitalists of Russia. Obviously the role of the
Western and Western-owned media, with their word-smiths of Economic Reform, have helped to give shape to such groups.
3. Leverage: this involves the direct use of negative and positive incentives by Western actors on target governments. My earlier article dealt at
some length with this. A useful discussion of the instruments available
for such leverage is David Baldwins Economic Statecraft. Again, despite
what Lloyd wrote in his 1992 article to the effect that Russia has become
the most easily penetrated country, it has actually been far less vulnerable to leverage than the states of East Central Europe. It is, in fact, only
by appreciating how much less structurally open to Western influence
Russia has been, that we can grasp the obsession on the part of Western
governments with Boris Yeltsin.
18
For an excellent discussion, see Stephan Haggard and Robert Kaufman, eds, The Politics
of Economic Adjustment. International Constraints, Distributive Conflicts and the State, Princeton 1992. Barbara Stallingss outstanding piece in this volume, which I unfortunately had
not read when I wrote my earlier article, should be required reading for policy makers in
Eastern Europe.
19
See T. Garton Ash, In Europes Name. Germany and the Divided Continent, London 1994.
He berates the German government for not doing enough in this area.
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