What Are the Changes Taking Place in Dominant Capitalism?

The current state of Western economy is largely the result of a process of gradual rupture between the financial spheres and the spheres of the real economy, which involves the production of goods and services. This is a major development that began in the early 1970s when President Nixon put an end to the convertibility of the American currency into gold. From that point on, freed from this fundamental constraint, the US authorities were able to print limitless US dollars.

The initial phase of the decoupling between the economy of production and that of finance is at the origin of the current structural transformations of capitalism through the gradual dismantling of the regulatory systems governing the financial and stock markets in the United States and Europe. These measures applied at the beginning of the 1980s with the aim of reviving flagging growth, are a direct outcome of economic ultra-liberalism, built in particular on the drastic reduction of social budgeting and public spending^[1], as well as on opening the markets to the widest possible extents and the extension of tax privileges towards the wealthiest social classes.

This doctrine, whose most famous theorists were Friedrich Hayek and Ludwig Von Mises^[2], constituted the alpha and omega of “Reaganomics,” named after former US President Ronald Reagan^[3], for which Margaret Thatcher had been the most notable European advocate. The policy of breaking with Keynesianism (which had dominated the post-WWII period) freed the markets from a large number of constraints. Its stated aims were stimulating economic activity, multiplying value chains, reducing unemployment, and eventually, improving the overall performance of the economy. The State of Chile under the military dictatorship resulting from the coup d'état of 1973 was the laboratory of this ultra-liberal orientation advocated for and implemented by economists of the Chicago School under the patronage of Milton Friedman.

Financialization and offshoring

The ultra-liberal turn of Western capitalism, which I refer to from here on as “financialization”, coincided with the reestablishment of diplomatic relations between Beijing and Washington in 1978, during the presidency of Jimmy Carter, and the economic reforms initiated the same year by the Chinese Communist Party under the leadership of Deng Xiaoping. Western investors were quick to take advantage of Beijing's opening, relocating labor-intensive industrial sectors en masse and benefitting from the very low salaries of numerous trained and efficient Chinese workers. Another no less significant advantage was the favored stability of the country: in China “order” reigns and strikes do not exist. Between 1978 and 2014, affected by reforms, the country's economic annual growth average reached 9.5% – an unprecedented performance. In just a few years, China went from “The Sweatshop of the World” to the status of the leading global economy of the scientific and technological avant-garde.

The demise of bureaucratic communism with the fall of the USSR in 1990 gradually and exponentially reduced the scope of state economies. Western oligarchies, free from the risk of being challenged for their control over States, had a free hand to impose brutal reforms intended to rid the market of the regulations that governed transactions, reduce the tax burden on their income, and minimize public spending as much as they could. The free market thus imposed itself as the exclusive doctrine of economically advanced countries. Margaret Thatcher curtly proclaimed: “There Is No Alternative”. The formula, reduced to its acronym TINA, has since flourished.

Adopted by the IMF and the World Bank, the liberal doctrine unified the world economy in brutality and injustice. The Washington Consensus^[4] which surfaced at the end of the 1980s represented the programmatic grid for the “responsible” conduct of all economic policy. We have since been able to measure the absolutely disastrous social effects, poverty, famine, the spread of diseases, and rampant illiteracy, caused by the standardized application of these principles in various bankrupt States that were forced to comply with the very liberal "conditionalities" of the IMF.

At the crossroads of the millennia, the relocation of production activities from developed northern countries to emerging, mainly Asian, economies, has therefore been taking place in the context of an accentuated financialization of Western economies. The City of London and Wall Street are the nerve centers of economies which are deindustrializing in favor of the tertiary sector and financial intermediation and speculation of every kind. During the 1990s, the Hedge Funds^[5], speculative investment funds and quasi-banks, the most well-known of which are located in tax havens, played a significant role in the derivatives market^[6] by collecting capital from various sources and recycling them in the new deregulated economy^[7].

Western strategists believe that maintaining a capital-intensive productive base at the forefront of tech-innovation will be enough to maintain their industrial supremacy. The tech companies of Silicon Valley in California constitute the ideal reference for a model largely built around the arms and security sectors. The new division of labor is built on maintaining “sensitive” industries in the United States and the European Union. Within this new arrangement, Israel was established as the main global center for the development of advanced weapons and espionage systems.

The democratic regression of the West

In the United States and Europe, the significant political advantage of the mass offshoring and the shift towards financialization lies in the erosion of the negotiating capacities of social categories formerly included in the classic capitalist production and wealth creation processes. The “white” working class is in fact the first victim of this strategic shift. Unions and political parties opposed to exploitation have therefore seen significant contraction in their electoral weight and mobilization capacities.

By weakening these intermediary bodies and stifling protests, oligarchies are redefining the political field, by installing their liegemen, mere agents in power, as heads of States, whose main priority is to dismantle the structures of social protection that - according to the neoliberal doctrine - disrupt the free functioning of the market. This development is perfectly embodied by Prime Minister Rishi Sunak in the United Kingdom and President Macron in France.

At the crossroads of the millennia, the relocation of production activities from developed northern countries to emerging, mainly Asian, economies, has therefore been taking place in the context of an accentuated financialization of Western economies. The City of London and Wall Street are the nerve centers of economies which are deindustrializing in favor of the tertiary sector and financial intermediation and speculation of every kind.

The new division of labor is built on maintaining “sensitive” industries in the United States and the European Union. Within this new arrangement, Israel was established as the main global center for the development of advanced weapons and espionage systems.

The rise of xenophobic populism throughout the Western arc masks the concentration of wealth and growing inequalities and social rifts resulting from neoliberal governance. Amidst continuous demagogic escalation, these currents - openly supported by local oligarchies^[8] - designate an enemy for the precarious categories: the foreigner, the immigrants, the Muslims. These are enemies that could be identified a thousand miles away, instead of the ones actually responsible for the growing life difficulties in regions where prosperity was, until recently, a possible future for the majority.

Without real opposition, the financial orientation of the economy promoted by Western political powers and implemented by multinational companies, in particular the banks and other financial organizations of the Triad^[9], is deepening and diversifying over time, at the pace of trade development and the interconnection of new markets. But the speculative orientation of Western capitalism experienced an extraordinary boost with the generalization of the Internet during the last decade of the twentieth century.

The Internet as a vector of financial globalization

Information technologies have made way for a gigantic leap forward in market activities by allowing, in addition to the instantaneity of transactions and the transcendence of distance constraints, new financial arrangements that are extremely profitable but highly risky, and opening up to myriads of contractors free from any institutional supervision. These financial operations, the sort of which previously reserved for specialized professionals in investment banks, are being democratized in a way that includes players from all walks of life.

These transactions quickly generate substantial margins of profit for the benefit of shareholders and investors who exert constant pressure to ensure the highest and fastest return on investment in a highly competitive context, thus fueling an uncontrollably accelerating speculative spiral.

The decoupling between the real economy and the financial economy reached enormous proportions, rapidly increasing between 2000 and 2007. Even the stock market collapse caused by the dot-com bubble in 2001 had little impact on the relentless expansion of the financial economy. According to the specialized economist, François Morin, “transactions in the so-called real economy, estimated by global GDP, constituted in 2007 only 1.6% of all transactions (financial and real), which is 64 times less than financial transactions^[10].”

In the US and Europe, the significant political advantage of the shift towards financialization lies in the erosion of the negotiating capacities of social categories formerly included in the classic capitalist production and wealth creation processes. The working class is in fact the first victim of this strategic shift.

Information technologies have made way for a gigantic leap forward in market activities by allowing, in addition to the instantaneity of transactions and the transcendence of distance constraints, new financial arrangements that are extremely profitable but highly risky, and opening up to myriads of contractors free from any institutional supervision.

The financial crisis of 2008 revealed the nature and extent of the dangers arising from the global economy’s slide into rampant speculation. The catastrophe that threatened the financial system following the bankruptcy of the Lehman Brothers Bank in New York was barely contained by the intense and coordinated intervention of central banks which injected tens (perhaps hundreds) of billions of dollars into the banking sector. The worrying, yet very real, prospects of a succession of bankruptcies were quickly identified. The vigorous reaction of the monetary authorities prevented a total collapse of confidence and the catastrophic drying up of interbank credit.

The means of resolving the 2008 crisis made it possible to emerge from it without major damage; however, the root of the problem remained unaddressed. The volume of transactions completely detached from production and trade activities remained disproportionate, making up several thousand times the transactions from the economy of production of goods and services. It is particularly telling that the strict monitoring of financial market activities enabled China to completely avoid this crisis and evade “importing” its repercussions.

The hidden side of financialization: laundering and recycling

Western monetary authorities, already aware of the need to monitor financial flows in the face of “international terrorism”, quickly coordinated operational tools to monitor and regulate banking activities to prevent, as much as possible, the recurrence of such disasters. But it is clear that this determination to control the technical and legal legitimacy of banking activity and to ensure the permanence of its solvency through reporting processes is limited by the fact that international financial transactions are not the prerogative of banks exclusively. Financial or brokerage companies, asset managers, and even commercial companies also carry out cross-border operations whose opacity is not just a matter of business transactions’ confidentiality…

The massive flow of transactions unrelated to trade or investment provides an effective cover for the movement of illicit capitals that need to be laundered before they are reinjected into official channels. Ad-hoc financial arrangements and tax havens, rejected at the official levels, are therefore necessary for the continued functioning of the globalized liberal economy. The regulatory authorities are aware of this, and hence deploy a selective approach in order to maintain transaction fluidity. Doubtlessly, economic financialization favors mafia activities and illicit recycling.

“Transactions in the so-called real economy, estimated by global GDP, constituted in 2007 only 1.6% of all transactions (financial and real), which is 64 times less than financial transactions.”

Adopted by the IMF and the World Bank, the liberal doctrine unified the world economy in brutality and injustice. The Washington Consensus which surfaced at the end of the 1980s represented the programmatic grid for the “responsible” conduct of all economic policy. We have since been able to measure its absolutely disastrous social effects in various bankrupt States.

In fact, the declared desire to coordinate the monitoring of international financial flows, manifested by the creation of the Financial Action Task Force (FATF)^[11] by the G7 in 1989 collides with political contingencies that have little concern for transparency. Tax havens and centers for laundering money that comes from tax evasion, corruption, and other criminal activities are tolerated - sometimes even discreetly protected. While “exotic” tax havens, in Panama or the Caribbean, sometimes make headlines, this is not really the case for all tax havens. Although Liechtenstein, Luxembourg, Monaco, and the Channel Islands in Europe are certainly subject to surveillance, they nevertheless continue to harbor doubtful financial assets, capitals resulting from illicit activities, and of course, commissions and retro-commissions from international contracts. It is worth noting that these places are not on the list of countries under FATF surveillance^[12].

With the emergence of new centers of power and with the multiplying need for financial services, new intermediation centers have emerged, acquiring within just a few years a prominent “standing”, such as the case of Dubai. Despite sporadic media articles on its role as an offshore laundry machine for stealth capital, the UAE, which has been on the “grey” list of countries under FATF surveillance since 2022, seems protected from any real consequences.

Understanding the political role and alliances of the UAE is difficult without taking into account this central dimension of its status as a global center^[13] for the recycling and financing of shady activities, as it is ideally located at the crossroads between Europe, Asia, and Africa. In fact, the political weight of this country, which transcends even that of the Gulf, is objectively disproportionate to its demographic and socio-economic dimensions. The intense destabilizing activities of this tiny, over-armed state in North and East Africa, as well as in the Sahel^[14], its alignment with Israel, and its support for NATO positions certainly comprise a political counterpart to the vast Western leniency in supervising the UAE’s financial activities. There is also talk of removing the UAE from the famous gray list under pressure from the US and its European allies^[15]. The financial gate between legitimate activities and the less sourceable operations of the UAE certainly takes on a strategic role.

Mutations

Western capitalism has mutated. In shifting its mode of operation, it has also shifted its mode of direction. Industry tycoons and intercontinental suppliers have been replaced by the heads of multinational banks and major financial speculators. The most powerful financial holding companies, Vanguard, Blackrock, and StateStreet^[16] - not to mention other active banking players- control, directly or indirectly, a considerable part of the major companies listed on the main world stock markets. This grants the managers and shareholders of these holding companies, largely unknown to the public, an exceptional capacity to influence political developments in the West. Despite being imperceptible to public opinion, this influence is much more powerful than that of the billionaires of the “spectacle” society who take center stage in mainstream media.

As with its economic policy, US foreign policy is driven by informal lobbies that ideologically converge around common interests – and enemies. They are organized around boards of directors of mega-banks and giant asset managers. These active spheres, where the ownership of capital is concentrated, have installed, since Reagan’s presidency, via their political and administrative agents, their media, and their intellectual networks, neo-conservatism under various modulations, as well as its socio-economic counterpart: neoliberal economics, as the ideological framework of the American political establishment.

The massive flow of transactions unrelated to trade or investment provides an effective cover for the movement of illicit capitals that need to be laundered before they are reinjected into official channels. Ad-hoc financial arrangements and tax havens, rejected at the official levels, are therefore necessary for the continued functioning of the globalized liberal economy. Economic financialization favors mafia activities and illicit recycling.

Despite sporadic media articles on its role as an offshore laundry machine for stealth capital, the UAE, which has been on the “grey” list of countries under FATF surveillance since 2022, seems sheltered from any real consequences.

Even though many deny it and distance themselves from it, particularly since the end of the presidency of George W. Bush, the fact remains that the neoconservative substrate deeply permeates the American political class - Democrats and Republicans alike. The imperialist vision of the world, based in particular on safeguarding the strategic supremacy of the United States and defending Israel, largely dominates the heads of the ideological state apparatuses and brands the continuity of US foreign policy.

War and financial markets are indeed the two wings of the American bald eagle, the US imperial symbol. Even beyond the power of its arsenals – incomparably unrivaled in their military capacity to deploy^[17] and destroy - the dollar is the structural instrument of domination. Embargoes are Washington's preferred weapon against those who oppose its views. Countries and companies accused of trading with Iran, Russia, Cuba or North Korea are the target of suffocating measures, such as the freezing of dollar assets and the obligation to pay exorbitant fines or, simply, outright exclusion from international financial settlement mechanisms. What further facilitates the implementation of these provisions, giving the unilateral decisions of the United States an absurd universal and extraterritorial status, is the fact that the US administration exercises effective control over all international regulations via the SWIFT network^[18]. All data relating to international financial transactions is in fact stored on servers located in the Netherlands and the United States…

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This article is of paramount importance in order for us to understand more about the shifts in global capitalism. It is part of a broader research launched in an attempt to follow up on the fundamental statement, “It Is Not Just about Gaza or Palestine,” drafted and published by Assafir Al-Arabi, available on our website in Arabic, French, and English.

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Translated by Sabah Jalloul

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1. Except for military spending. ↑
2. https://www.wikiberal.org/wiki/%C3%89cole_autrichienne ↑
3. Ronald Reagan, President of the United States from 1981 to 1989. ↑
4. This tacit consensus forms the basis of the IMF's Structural Adjustment Programs, founded on John Williamson's ten recommendations (1989): 1. Fiscal discipline (no deficits); 2. Reordering public expenditure priorities (priority to financial efficiency); 3. Tax reform (Broadening of the tax base, reduction of income and capital gains tax); 4. Monetary stability (low inflation, reduction of deficits, control of monetary reserves); 5. Adoption of a single and competitive exchange rate; 6. Liberalization of foreign trade; 7. Liberalization of foreign direct investment; 8. Privatization of public companies; 9. Market deregulation (no protectionism or export barriers); 10. Strict respect for property rights (including intellectual property). ↑
5. Speculative investment funds, managing assets and investments using innovative methods and market techniques, derivatives, leverage, short selling, etc., are involved in the efficient management of sometimes very high risks. ↑
6. https://www.privatebanking.societegenerale.com/fileadmin/user_upload/SGPB_2019/Fiches_p%C3%A9dagogiques_SGPB_FRA/Fiche_Produits_D%C3%A9riv%C3%A9s_VF.pdf ↑
7. https://www.agefi.fr/asset-management/actualites/les-20-hedge-funds-les-plus-performants-au-monde-ont-gagne-67-milliards-de-dollars-nets-en-2023 ↑
8. In France, some major capitalists’ activities, such as Vincent Bolloré at the head of a far right media group, is public knowledge. ↑
9. This name, coined by economist Kenichi Ohmae in 1985, brings together the three major economic zones of the time: United States, Japan and Europe. ↑
10. https://blogs.alternatives-economiques.fr/gadrey/2014/09/13/la-finance-pese-t-elle-100-Times-plus-que-l-economie-reelle-10-Times-plus-much-less ↑
11. https://www.fatf-gafi.org/fr/the-fatf/who-we-are.html ↑
12. https://www.douane.gouv.fr/actualites/actualisation-par-le-gafi-de-la-liste-des-pays-sur-liste-grise-et-noire ↑
13. https://deontofi.com/dubai-paradis-blanchiment-pandora-papers/ ↑
14. https://thecradle.co/articles/uae-seeks-removal-from-financial-gray-list-following-reforms ↑
15. https://finance.yahoo.com/news/blackrock-state-street-vanguard-arguably-211002034.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuc3RhcnRwYWdlLmNvbS8&guce_referrer_sig=AQAAADTsnE8omAaHFayTnNPfgQI-bnifdc0Ch2TU0eL6Rt3Y1Y9zA51tRhkmXKkBiKzHJZuErXF94BrxgyEcc913_kzJcXKyQoa_PPmhu9vtC5KHltXM7LiI0LQ1xsNxykPwOZdRbHDNTkKOubadTemIS5miYk8E1zzw_VSmAryIAvZB ↑
16. https://www.pressenza.com/fr/2021/11/le-spectre-des-trois-grands-vanguard-blackrock-et-state-street-global-advisor/ ↑
17. The US’ projection capacity relies on a fleet of 11 aircraft carriers and a network of hundreds of military bases on every continent. ↑
18. https://e-finances.fr/tout-savoir-sur-le-protocole-swift/ ↑