The policies of the Reagan administration strive to recapture the nearly unlimited US power of the 20 years following World War II. Through the late 1960s and 1970s, US global dominance steadily declined in all but the military realm. This decline occurred during a period of intense global economic integration. Since 1979, in a belated response to this loss of hegemony, US state managers have embraced a radically aggressive and destructive new policy comprising three main elements: monetarism, militarism and markets. In an attempt to reverse recent historical trends, they have embarked upon an adventurist foreign policy while simultaneously attacking the economic wellbeing of both the traditionally high-wage US working class and the disenfranchised poor. Through a major restructuring of domestic and international relationships of power, these policymakers are struggling to reestablish the degree of US hegemony that prevailed in the post-war years.
The US emerged from World War II not only physically unscathed but economically revitalized. Large corporations, due to their ability to control the war contracting process, were the main beneficiaries of the structural transformations arising from the war. With its industrial rivals vanquished immediately after WW II, the US accounted for about 70 percent of the output of the advanced capitalist nations. The relative power of the US and its corporations allowed US policymakers to shape postwar institutions virtually as they saw fit. Former Secretary of State Dean Acheson aptly termed this period “the creation.”
At this “creation,” US corporate leaders possessed an unprecedented degree of access to foreign markets and strong control over international trade, banking and investment. Domestically, due to the wartime no-strike pledge, these leaders were able to regain control over the labor process inside US factories, as the feisty Congress of Industrial Organizations was beaten back by a barrage of “patriotism” and later McCarthyism. These same corporations were able to exploit a treasure trove of new technologies — some coming unused from the depression years of the 1930s, some from military spending during the war and some transferred from Germany at the war’s end. They were able to control much of the international economy, dominate a highly productive labor force and find outlets for accumulated profits by tapping new technologies. This was the magic combination that gave rise to the longest and most impressive boom in the history of capitalism.
US policymakers designed a liberal post-war order in which the old imperial protectionist preference systems were eliminated. This gave corporations from all advanced capitalist nations free access to the world’s resources and markets, thereby encouraging rapid capital accumulation. The system worked too well, in the sense that it eventually proved that there is no such thing as “capitalism in one country.” US hegemony was transformed into rivalry between advanced capitalist nations. By 1979, the combined productive power of the European Common Market nations exceeded that of the US, while Japan’s production alone, as of 1981, came to nearly one half of that of the US. Western Europe and Japan experienced much higher rates of economic growth than did the US from the late 1950s through the early 1970s. In the case of Japan, this situation lasted into the early 1980s.
New technologies were central to the growth process, by creating new markets and lowering costs in established industries. First applied in the US in the 1940s and early 1950s, these same technologies led to spectacular results as they were transferred first to Europe in the late 1950s and later to Japan: Had this process of rapid new technological development continued, the US might have been able to perpetuate its industrial lead. But major technical innovations practically ceased in the late 1960s. At the same time, many of the new technologies had expanded the opportunities to compete across international boundaries. Containerized shipping, supertankers, the telex and the computer — to mention a few — greatly increased the capacity of national capitals to penetrate the marketing area of their rivals. As the cornucopia of postwar technologies was gradually exhausted, growing markets were harder to secure within each nation.  This led to a new emphasis on exports and foreign investment, but even this degree of internationalization was insufficient to reverse the basic trend toward stagnation. Throughout the advanced capitalist nations, the profit rate fell steadily in the late 1960s and through the 1970s, as recession followed recession. 
This process led to further fragmentation of global economic power in the 1970s by contributing to the growth of newly industrializing countries. Because of falling profit rates at home, corporations were hesitant to reinvest their profits — which remained large in absolute terms — in new industrial plants and equipment in established sectors. As a result, these profits ended up in the international banking system. The newly industrializing countries borrowed large sums from some of these banks, and turned some of these accumulating corporate profits into new industrial capacity in various parts of the Third World. Yet another threat to the power of the advanced capitalist nations came from OPEC, which raised the specter of other commodity cartels forming throughout the Third World. The apparent power of OPEC, wildly fluctuating raw materials prices, industrial export competition from the newly industrializing countries and the spectacular rise of Japan — all these combined in the minds of many policymakers to create a sense of long-term economic and political decline. Table I assembles various data that document this impression in the economic sphere. Capitalist Crisis and Structural Change Events of the 1970s — the US defeat in Vietnam, the rise of OPEC, the collapse of the Bretton Woods international monetary system, and a series of revolutionary successes in the Third World  indicated a shift in economic, political, ideological and military power. These international setbacks were intertwined with symptoms of a prolonged structural economic crisis: the European run on the dollar after 1969 and the collapse of the Bretton Woods system in 1971; the first “peacetime” wage-price controls in the US (1971-1973); rising interest rates and hyperinflation (1976-1979). As the decade turned, the debt crisis in the Third World threatened the international financial system with collapse. In the US, budget deficits reached record levels, while business bankruptcies and bank failures equaled or surpassed those of the Great Depression. The unemployment rate, always about 7 percent, belied the touted economic “recovery.”
Table I: The Decline in US Economic Power
Year Share of Industrial Production Share of World Manufacturing Value Added Share of World Exports Share of World Manufacturing Exports
(Top 5 Nations)
1948 – 56.7 21.9 –
1953 – 55.3 18.9 –
1958 – 34.2 16.4 20.4
1960 67 – – –
1963 64 32.6 29.7 (a) 14.9 17.3
1970 60 24.3 13.6 14.9
1975 51 21.3 12.2 13.9
1979 46 21.7 10.9 12.2
(a) Value added share for the period 1948-1963 computed by UNIDO in current prices. For the period 1963-1979 computation based upon constant price data. All trade share computation based upon current price data.
Sources: United Nations (UN), Growth of World Industry, 1938-61 (New York: United Nations, 1963); UN, Yearbook of Industrial Statistics; UN, Monthly Bulletin of Statistics (various issues) UN Statistical Yearbook (1977); IMF, International Financial Statistics Yearbook (various issues); UNIDO, World Industry in 1980 (Vienna; 1981) and UNIDO, Changing Patterns in World Industry (Vienna, 1982)
Policymakers insisted that the increasingly severe recessions of 1969-1970, 1973-1975 and 1980-1982 were not related to international political setbacks. After each “crisis” receded, government spokespeople confidently pronounced that a “strong and sustainable recovery” was underway, suggesting that the US economy would return to the halcyon days of 1947-1969.
With few exceptions, US policymakers had thoroughly absorbed their own technocratic myth of a reformed “capitalism with a human face.” In this view, nothing more than temporary impediments could block the path of ongoing capital accumulation and economic growth. Below the surface, though, unmistakable long-term changes had occurred. One primary indication is the fact that real wages per worker reached a peak in 1972; in July 1984, they were 6 percent below the 1967 level on a pre-tax basis. The US government no longer releases data on the post-tax workers’ income, but it is fair to assume that the regressive changes in tax laws since 1967 have pushed post-tax wages some 10 to 15 percent below what they were 17 years earlier. More recently, cutbacks in the “social wage” — services and public systems such as transportation, education and health care — have further reduced the resources available to the majority of the population. The effects of such a change are threefold. First, declining real purchasing power adds an “under-consumptionist” twist to any interpretation of the current crisis.  Second, declining real wages have been partially compensated by state policies that contributed to ballooning consumer credit in the 1970s, and thus directly to hyperinflation.  Third, declining real wages have pushed an increasingly larger percentage of working class families to send more than one worker into the labor force. This intensified exploitation has produced enormous pressures inside families and society. Revanchist state policymakers have redirected this built-up resentment toward external “enemies”: Third World nationalist movements and “Soviet aggression.”
Not only wages have fallen. Corporate profit rates in the US in 1982 were less than half the level attained in the 1965-1969 period. This was no aberration: they had been well below the 1965-69 level for every year since 1969.a Low profits have led to the “deindustrialization” of the US, as the corporate sector has moved away from long-term manufacturing investments toward speculative, unproductive financial investments. For the 1969-1982 period, net investment in plant and equipment as a share of production in the non-financial corporate sector (58 percent of the GNP) was 15 percent below its 1947-1968 average.
Qualitatively, matters were even worse: virtually all the investment in the 1975-1980 period was designed to replace existing energy systems made obsolete by the suddenly high price of oil. Non-energy-related investment fell to only 1.8 percent of GNP.  The virtual collapse of productive investments led to a slowdown in real economic growth. In 1984, purportedly a year of economic recovery, US corporations will spend as much on mergers, corporate buybacks and leveraged buyouts — all forms of speculation — as they will on investment.  Despite the feeble “recovery” that put real GNP only four percent above the 1979 level in 1983, investment actually fell by four percent in the same period.  The slowdown in investment has led, logically, to a “productivity” crisis. Where growth of output per worker increased 4.1 percent from 1947-1969, in the 1970-1982 period it was a negligible 0.3 percent per year. 
Internationalization and Overproduction
After World War II, advanced capitalist states utilized a broad range of devices — monetary policy, credit-creating agencies, deficit spending, tax reforms, government-supported research and development, public housing programs, nationalized industries, military spending — to counteract the impact of recession and slowdown. As long as the underlying framework of capitalist accumulation was basically sound, state intervention could be used to stimulate this accumulation when the growth process faltered.
This Keynesian approach of demand management paid scant attention to problems of excess capital formation — excess supply — and to the effects of international competition. Through the late 1960s, this limited vision led to no serious problems, but by the close of the decade a new reality had materialized. Basic industries had used up the existing stock of major technological innovations. The only way to maintain expansion was to internationalize production and/or sales. Foreign trade and investment grew more than twice as fast as domestic measures of production in the 1960s and 1970s in the advanced capitalist countries. Economic policymakers had no way of “managing demand” in the context of the burgeoning international tendencies of the system. The 1960s and 1970s witnessed a fundamental transition — from a world dominated by Keynesian forms of national economic management to a world system dominated by the anarchy of global competition.
Table II reveals certain qualitative aspects of this process. First, the internationalization, however measured, was greater for the US in the decade of the 1970s than in the 1960s. Second, the US economy eventually failed to keep pace with overall internationalizing trends: foreign manufactured goods are entering the US economy faster than the US is able to export manufactured goods. In 1960, the share of manufactured imports in relation to domestically produced manufactured goods was roughly half that of the export of manufactured goods in relation to domestically produced manufactured goods. Throughout the period of 1960-1980, as this difference narrowed, the US continued to post a positive and large surplus on manufacturing trade.  In 1982, this turned into a deficit of over $9 billion, and in 1983 the deficit was $38 billion. It promises to be even larger in 1984, and is a major reason for the growing strength of the perspective adopted by protectionist and industrial policy advocates in the current debate over economic policy.
Table II: The Internationalization of the US Economy
1960 1970 1980
Exports as % GNP 4.0 4.3 8.2
Imports as % GNP 3.0 4.0 9.2
Export of Manufacturers as % Manufactured Goods GDP 8.8 11.6 24.3
Import of Manufactures as % Manufactured Goods GDP 4.8 10.3 21.3
US Foreign Investment Abroad $30.4b $75.6b $215.5b
Profit on Investment Abroad as % Total Corporate Profits 12.2 21.8 23.0
Direct Foreign Investment in US – $13.2b $68.4b
Foreign Assets US Banks as % Total Assets US Banks 1.5 12.2 26.0
Sources: Economic Report of the President 1981 and 1982 (Washington: USGPO); US Department of Commerce, US Direct Investment Abroad (various years) and Survey of Current Business (various years); Arthur MacEwan, “International Economic Crisis and the Limits of Macropolicy,” Socialist Review 59 (September-October 1981), p. 121; Andrew Brimoner and Frederick Dahl, “Growth of American International Banking,” Journal of Finance (May 1975), p. 345; and Dollars and Sense (September 1983), p. 5.
While foreign operations are increasingly important to the largest US corporations, most of the increase in foreign profits relative to domestic profits occurred in the 1960s. Even direct foreign investment by US corporations, after adjusting for inflation, actually grew more in the 1960s (117 percent) than in the 1970s (72 percent). Investment by foreigners in the US soared in the 1970s by 304 percent (after adjusting for inflation). In the 1970s, the US corporate sector found it much more desirable to export bank capital via foreign lending, particularly to the Third World, than to construct plant and equipment via direct foreign investment. There was a spectacular increase in foreign loans during the entire period; these loans more than doubled as a share of all loans in the 1970s. By 1978, fully 48 percent of the profits of the 10 largest US banks were coming from foreign loans and transactions. 
As the process of production and marketing became more internationalized, it became increasingly difficult to calculate the growth of competitors’ production capacity. On a national level, firms understood their competitors; through trade associations and government agencies they could more realistically estimate their competitors’ growth of production capacity. But when accumulation became more and more a global matter, investment decisions became more difficult. The long lead time — five to ten years — before new investments materialized in new factories and machines has left a huge margin for error. The competing firms increased global productive capacity faster than the growth of global demand. Such imbalances might not be noticeable for many years, allowing very large levels of excess capacity to accumulate on a global scale.
By the late 1970s, the business press was chronically noting that numerous major industries were awash in excess capacity on a world level, including autos and trucks, construction and ether heavy equipment, machine tools, shipbuilding, commercial airframes, chemicals, textiles, polyesters, steel, aluminum, microcircuits, dyes and pigments, petroleum refining and nitrogen fertilizers.  Past capital accumulation, it seems, had become a barrier to further accumulation.
Had the matter simply been one of overproduction of factories, machines and commodities within the advanced capitalist nations, some agreement to limit the extent of overcapacity could probably have been reached. At precisely the time that serious excess capacity problems became visible in these nations, the newly industrializing countries began to build up their own capacities in steelmaking, plastics, chemicals and petroleum, with an eye to the world export market. While the advanced capitalist nations staggered from recession to recession throughout the 1970s, these newly industrializing countries boomed. Taken together, all the less developed nations had a real rate of manufacturing growth twice as high as the advanced capitalist nations throughout the 1970s.  The repercussions of this surge in industrialization are still rattling the advanced capitalist economies. For example, the US scrapped 25 million tons of steel capacity between 1977 and 1984. In 1980-1984, the Common Market steel producers cut their capacity by 18 million tons. Despite these cutbacks, world excess capacity has grown by at least 60-70 million tons; since 1973, Third World steel producers have increased their capacity by more than 100 percent — in 1983 they accounted for over 18 percent of the world total. 
The Decline of US Power: Perception and Reaction
US hegemony after World War II was achieved informally. Although there was an element of design to all of this, much of the new system was improvised. Japanese and German postwar reconstruction policies, the Truman Doctrine in the Middle East, the International Monetary Fund and the World Bank as well as the structure of the United Nations and the rapid spread of foreign US military bases after the war all clearly reflected US economic, political and military power. All were presented to US citizens and the world as essential to protect “freedom” or to ensure a “peaceful world order.” Only the military base system carried the unmistakable stamp of US hegemony. 
Because of its subtle, ad hoc nature, and because of the ideological insistence that the new institutions were instruments of multilateral policymaking, relatively few US policymakers seemed aware of the systemic nature of this arrangement for maintaining and projecting US power. This fostered a neat inversion: The US had no global interests, and no global system to protect such interests; interventions such as the Korean War or the coup in Guatemala were necessary to prevent the rise of Soviet hegemony. Only the debate over the war in Vietnam finally brought home to many people in this country the imperial objectives and designs of US foreign policy. This shock of recognition gave rise in the 1970s to the “Vietnam syndrome.” Even then, the ad hoc approach had become so entrenched in the perceptual apparatus of the state managers that many perceived the defeat in Vietnam as an “incident” rather than a fundamental turning point in US relations with the Third World. This defeat produced another ad hoc approach to controlling the Third World — the Nixon Doctrine — whereby certain regional powers in the Third World would serve as surrogates for US intervention. The limits of this policy became apparent with the fall of the Shah of Iran in 1978-1979.
With the US and its allies/rivals pursuing policies of economic expansion, it was inevitable that Third World nationalist regimes would attempt to increase their share of economic growth. The invigoration of OPEC, for one thing, was partly the result of the long boom of industrial capitalism in the developed nations. Prolonged growth increased demand for raw materials from the Third World and encouraged Third World producers to attempt to alter the terms of exchange between themselves and those that specialize in manufactures and modern industrial techniques.
Europe and Japan met the successful runup in the price of oil after 1973 with a rapid change of industrial structures and techniques in order to respond to this challenge. In the US, the responses were more chaotic and less effective. The oil exporting nations — particularly those in the Middle East — quickly became scapegoats for the economic recession of 1973-1975. This signaled the new politics of resentment, and a new pro-imperialist political tendency that openly asserted advanced capitalist nations’ claims to Middle East oil and other Third World resources. Even here, though, OPEC’s relative success was seen not as an indication of a systemic change in the global structure of power, but rather as another discrete event, perhaps requiring military intervention.
Another example of the “pragmatic” response to the erosion of US global economic and political power can be found in the complex and arcane realm of international monetary relations. Scrapping the Bretton Woods system of fixed dollar-to-gold exchange rates, the basis of the postwar monetary order, was an act of arrogant expediency on the part of US policymakers in 1971. This led to a system of “freely fluctuating” exchange rates in 1973. Ricardo Parboni describes the US strategy as one of narrow and combative nationalism. The policy became one of maneuvering US trade relations into a preferable position within the international economy, even at the cost of undermining the structure of the international system of trade, investment and banking. The US thus abandoned its managerial posture and entered into a new phase in which “the United States no longer provides the collective blessing of world economic stability, but instead unhesitatingly pursues its own national interest, and thus has become the principal source of [disorder] in the international economy.”  In other words, US dominance continued in the 1970s but had become a sort of “degenerate” leadership, deepening crisis tendencies and thereby threatening the profitability and viability of US corporate interests domestically and internationally. The crucial point concerning the destruction of the stability of the international monetary system is that here, as elsewhere, the changing structure of post-war economic relations failed to elicit a fundamental reassessment of global economic policy and institutions. Rather than exploring broad multilateral changes, US political leaders found refuge and comfort in the platitudes of eighteenth-century economic theory regarding the supposed implicit virtues and stabilizing tendencies of freely fluctuating currencies and “free” markets.
Policy Crisis of the Capitalist State
By the end of the 1970s, it had become clear to some elements of the bipartisan policymaking elite that the defeat in Vietnam, the rise of OPEC and the collapse of the Bretton Woods system were not isolated events, easily reversible by pragmatic incremental policy changes. As awareness of declining US power grew, the bipartisan policymaking elite that had long controlled the state apparatus divided into two rival factions — the “managers” and the “revanchists.” The political ascendance of Ronald Reagan marks the short-run victory of the revanchists in this struggle, but the endemic weaknesses of their policy suggest that the crisis over state policy, like the international economic crisis that gave rise to it, is far from being resolved.
The rise of the revanchist policy represents an implosion of the old guard. This old guard was best embodied in the Council on Foreign Relations, a grouping which dominated the conceptualization of US foreign policy from World War II through the 1960s.  With the defeat of the US in Vietnam, the emergence of OPEC, and the rise of Japan and Europe in the post-war global order, an innovative subset of the Council attempted to realign US foreign policy toward these new global realities.
This new group, the Trilateral Commission, was formed in 1973, and it rapidly gained access to the levers of state power through the election of President Jimmy Carter.  But even from that position the Trilateralists were unable to alter the post-war institutional structure. A part of their failure must be attributed to the institutional and intellectual inertia accumulated through long years when a magisterial approach to foreign affairs and tepid Keynesianism at home appeared to be a sufficient combination for maintaining the prevailing world order. A greater weakness was their cavalier assumption that the very structures of national and international power relationships between and within classes, regions and nations could be easily and quickly altered in a particular direction simply because a relative handful of exceedingly wealthy and powerfully placed corporate and state leaders thought they should be.
This was in spite of the brutal “realism” of the Trilateral message: The way out of the cul-de-sac of the 1970s was to acknowledge the permanent loss of US dominance in the world economy. The complex Trilateralist approach proposed conceding some power in order to contain change and retain a measure of shared control. Nation-states, and particularly the US state, would have less control over the international economy, while a new order would emerge which would be more favorable to the economic interests of transnational corporations of US, European and Japanese registry. A new form of “collective hegemony” was envisaged: The advanced capitalist nations would form new supranational institutions that would reflect the new division of economic power among themselves. In place of the old Bretton Woods system, new arrangements would perpetuate the hegemony of the advanced capitalist nations while making qualified concessions to the new emerging power centers such as the newly industrializing countries and OPEC. But the Trilateralists were decidedly vague on how all this was to be achieved, and decidely inept at managing the economic slump and hyperinflation of the late 1970s.
At the same time, a group with equally strong ties to the old Council on Foreign Relations emerged under the name of the Committee on the Present Danger.  Many members of this small but powerful group had occupied key positions in what has been termed the “national security state” — the Departments of Defense and State and the National Security Council. Because of their revulsion for the Trilateralist policy of detente with the Soviet Union, and their feeling that the US was conceding the contested terrain of the Third World to the Soviets, the Committee decided to go “public” in 1976 immediately upon the election of Jimmy Carter.
Unlike the Trilateralists, the Committee does not have strong direct links to US corporations, national or transnational. The Committee has kept its membership limited to strategists such as the ubiquitous Paul Nitze and ideologues such as UN Ambassador Jeanne Kirkpatrick. Their incessant demands for ever-higher levels of military spending have inordinately benefited certain “high-tech” industries, and military contracts for ships and tanks have provided a cushion for the “rust belt” industrial states hard hit during the Reagan depression of 1981-1982. But the Committee utilizes language and imagery decidedly removed from the economic realm — national honor, freedom, “vital interests” and the like. The particular strength of the Committee is its adroit manipulation of the language and imagery of a resurgent nationalism and unvarnished jingoism. These phrases amount to a scarcely veiled demand for control of virtually the entire world. “Leadership” decoded means that the European drift toward autonomy in foreign and economic policy matters should be contained within a strengthened, restructured NATO.
The Committee has captured the policy high ground from its fellow elite policymakers in the Trilateral faction because of its ability to harness the “politics of resentment” to its design. The politics of resentment stem from the widespread “common-sense” public understanding as to why US power has been declining, why the US economy has been vulnerable to external shocks, why the Third World is in political ferment and anti-American, why unemployment has been rising since the 1960s — in a word, why the “American dream” is now well beyond the grasp of most US citizens. The Committee ideologues in the Reagan administration have skillfully managed to gain the support of many members of the working class through their straightforward appeal to a long-inculcated, virulent form of national chauvinism. The Committee has successfully displaced the anxiety and despair the working class feels onto renascent militarism and nationalism.
The Committee has had to form an alliance with the new right in order to maintain a powerful electoral impact. The new right combines newly created millionaires, small business owners and some white workers with fundamentalist religious groups, free-market ideologues and Third World “comprador” elements that have migrated to the US in their flight from social change. They join forces around a backward-looking ideology of nationalistic neo-individualism as the best approach in an age when production and social organization are collective and increasingly international. By definition, the new right stands outside of the process of historical change, nostalgically yearning for a past based in the individualist ethos of personal ownership and control of the production process. The revival of the frontier ideology of the nineteenth century is a poor substitute for rational state policies, but it does provide an ideological smokescreen behind which US capital can act with impunity against workers at home and rivals abroad.
The Right’s Base
The material base for the new right’s participation in national politics lies in the small business sector. In spite of the growing centralization of capital in the US economy, this sector still maintains considerable political weight when mobilized?there are over 14 million small businesses and their production amounts to a surprisingly large 38 percent of the gross national product.  The vulgar revanchists of the new right are strong champions of the “magic of the marketplace” when that means cost-plus military contracts, union busting and easy access to cheap foreign labor. In matters of foreign policy, the tension between the vulgar and elite revanchist fractions is obvious. The Committee looks back nostalgically to the Atlanticist and Eurocentric policies of the US in the late 1940s and 1950s. The new right, resurrecting the platform of the Taft Republicans from the early post-war period, seeks to: reduce policy linkages to Europe since they have no strong economic links to the region, project US military power globally — a considerable amount of economic activity in the “sun belt” is generated by military spending — and accentuate trade and investment in the Pacific Rim, Latin America and the Middle East. The emphasis on militarism has facilitated a limited restructuring of the industrial base. The contradiction here is that the new technologies coming out of the current military boom are either not often applicable — due to their exotic nature — or technologies that are rapidly internationalized, thereby heightening rivalry. 
The longevity of the Committee on the Present Danger’s alliance with the new right in policymaking is questionable. Their domestic coup has done little to alter the fact of growing European and Japanese power, and the need for some realignment among these allies/rivals. Without structural changes, they and the newly industrializing countries will continue to compete for markets and profits in an increasingly unstable world. The retreat into protectionism and the breakdown of international banking and trade relationships that accompanied the rivalry of the 1920s and 1930s could be repeated. Already the Reagan “recovery” has given way to virtual stagnation and another more severe downturn seems imminent. If the revanchists are not undone by economic developments, then their intemperate militarism will likely push them into war somewhere in the Third World. In fact, the economic downturn could strengthen this tendency.
For the moment, the Council on Foreign Relations’ Trilateralist faction has moved from acquiescence to grudging support for the revanchist policy. But since the Committee and the new right are unable to address the economic interests of the traditional industrial base of the US economy, their victory may be fleeting. A new coalition of industrialists, investment bankers and labor unions from the “rust belt” is emerging to advocate that the state adopt an “industrial policy” approach to chronic unemployment, sagging profits and excess capacity.  Their approach to the current structural crisis is to build a corporatist industrial policy drawing upon the experiences of the Japanese, French and Germans as well as looking at the industrial strategies of Brazil, Mexico and South Korea, This group, with strong ties to Walter Mondale, gives voice to a powerful concern that reaches across the full spectrum of US manufacturing industries, suggesting that the struggle over state policy will continue.
The demands placed upon the state in the current period of structural crisis are twofold: to destroy those forces that are blocking the growth process and to construct a new social and technological structure of capital accumulation. The method in the madness of Reaganism is its capacity to play the necessary destructive role through the relentless application of monetarism, militarism and markets. Yet there is nothing in the policies of Reaganism pointing to the construction of a new form of accumulation. Indeed, the enduring paradox of Reaganism is that its single-minded pursuit of draconian measures and its entrenched infatuation with an obsolete market mentality will also destroy the possibilities of renewed domestic accumulation.
Monetarists often disingenuously suggest that they care only about controlling inflation — by controlling the money supply. Milton Friedman’s 1962 polemic, Capitalism and Freedom, clearly states the monetarists’ project to eliminate the welfare side of the warfare/welfare state. Friedman and his acolytes have long and loudly professed their enmity to any concept of “capitalism with a human face.” Smash the unions, eliminate the minimum wage, destroy old-age insurance programs, deny the working class any refuge against shoddy and dangerous products and harmful working conditions, and dismantle all programs designed to control or constrain the concentration and centralization of bank and industrial capital. Use only money to control the broadest movements of the macro-economy: If economic policymaking is limited to monetary policy made by a banking elite, there is no possibility that it could become more democratic, as a government budget could — no possibility, in other words, that the working class would use the democratic shell game to seize control of the capitalist state.
The timing of the monetarists’ ascendancy is related to the wider problems within the economic base. The crisis, while brought on by capital itself through the over-accumulation of capital on a world scale, was secondarily deepened by the high wage, pro-union policies of the Keynesian policymakers since the 1940s and by the Keynesian project of a highly constrained welfare state. Monetarism addresses the secondary contradictions of the current crisis, by relieving somewhat the downward pressure on the profit rate through a wholesale attack on organized labor and the welfare state. This, as noted earlier, raises the specter of under-consumption.
Monetarism also has its international application. The raw materials producers and the newly industrializing countries continued to borrow from the transnational banking system in the 1978-1980 period, even while the Eurobond rate approached 18 percent per year. Selected Third World countries gambled that their growth would continue, and that this growth would pay for their mounting debts. Third World debt skyrocketed from $70 billion in 1970 to over $700 billion in 1983. The banks of the advanced capitalist countries were flush with funds, because capital accumulation had slowed drastically in those countries in the 1970s and the strongest corporations simply banked their accumulated profits. The banks recycled these surpluses, and new markets were created for some US firms — as with Bechtel’s massive projects in the Middle East, and the huge arms exports to this region. At the same time, with the export of capital goods and technology, the newly industrializing countries began to flood the world market with sophisticated electronics, plastics, steel and other products, thereby accelerating the over-accumulation (excess capacity) process.
In the late 1970s, the monetarist noose began to tighten on these Third World countries. They had reached for a credit line to pull themselves from the underdevelopment trap; now this exposed them to the monetarist violence of imposed austerity. As world economic growth ground to a halt and then declined in 1980-1983, these countries were unable to continue exporting to earn the hard currency needed to pay the interest on their debt.  This pushed them to the IMF and the international banking “clubs” where “conditionality” was the shorthand for slashing food and basic goods subsidies, inducing recession, reducing public sector employment and destroying unions and public health programs. Austerity and the need for hard currency promptly turned some of the prime advocates of the New International Economic Order — Mexico, Venezuela, Brazil — into nations racing to open their doors and their resources to foreign corporations on terms not seen since the 1940s. As the slump deepened, talk of a New International Economic Order, of producers’ cartels and of a North-South struggle receded into the background.
Capital has used the monetarist opening to launch an offensive within the advanced capitalist nations and towards the Third World. US capital’s ruthless pursuit of monetary violence has enabled it to reverse some of its long slide from unquestioned international hegemony in the postwar years. The US share of the combined production of the five largest capitalist nations, which had declined to 46 percent in 1970, experienced a dramatic jump to 50.4 percent in 1981, and to 52.7 in 1982.  The US has already recouped all its relative losses from the latter half of the 1970s and is quickly moving toward the power position it held as of 1970. Even Japan has suffered a relative setback. The monetarist offensive was more successful in the US than in the other advanced capitalist countries because the US welfare state is weakly established and poorly defended. In Europe, by contrast, the monetarists had to induce much higher levels of unemployment in order to bludgeon the working classes into accepting modest limitations of the welfare state.
During the long post-war boom, the vast bulk of US military expenditures were designed to foster private capital accumulation within the US economy and to stabilize the economy during business cycles. In other words, they were designed mainly to prime the Keynesian pump of capital accumulation and to stimulate the circulation of commodities during business cycles.  Military forces did intervene throughout the Third World in the 1940s, 1950s and 1960s, but the size of the US military apparatus cannot be explained by the need to project power into these regions, or by a “Soviet threat.” The post-war US military buildup occurred at the precise time (1948-1953) when the USSR was economically, demographically and militarily decimated.
Into the 1970s, the constant theme in military contracting was one of cost overruns, weapons that frequently failed to meet specifications, the failure to deliver contract-specified numbers of weapons (while the total sum of the contract was paid), the construction of weapons systems that were then declared obsolete and never used, and wanton profiteering. Moreover, military spending fluctuated almost precisely and in a counteracting way with the business cycle. The Pentagon had enough equipment to fight two and a half wars, but no opponents. The chief purpose of all of this was capitalist planning in a nation so ideologically beholden to the free market that no other form of Keynesianism would work. The Marshall Plan and subsequent plans to prime the pump of accumulation on a global scale (e.g., foreign aid, support for the World Bank), had to be wrapped in the trappings of the Soviet threat to gain support from the Congress, the media and the voting populace. Other forms of the welfare state were developed grudgingly, if at all, in small increments. Military Keynesianism became the uniquely US way to attempt to extend and stabilize the growth of the economy in the post-war period. 
Since the 1970s, US militarism has been going through a process of transformation. Policymakers continue to use military expenditures to counter and to control the velocity and depth of the economic downturn, but unlike the Keynesians they are not concerned with using military expenditures to create a high-wage economy operating at near full employment. Rather, they seek a low-wage, highly productive economy to enhance the competitive position of the US in the world market. Yet the state planners also seek a particular advantage they long enjoyed in the Keynesian era — privileged access to Third World resources and markets. Partly this access is secured through the US ability to dominate the capital lending process to debtor nations. But monetary violence can only assure access to those caught in the web of the debt trap. For the rest, the US has placed a heightened emphasis on functional militarism.
Military spending today has become secondarily Keynesian and primarily functional: to intervene in the Third World. Functional militarism, still enveloped in the rhetoric of the “Soviet threat,” is designed to address what the Committee on the Present Danger-new right factions see as a dangerous drift toward Third World autonomy. Renewed base construction (especially in the Middle East and Central America), the creation of the Rapid Deployment Force (now known as the Central Command), and the emphasis on the conventional weapons buildup — especially the Navy — are the major components of this program.
Militarism is one means by which the US seeks to attain a prime niche in the evolving international system. It aims at lowering costs of production via secure long-term access to Third World raw materials, markets, and investment opportunities. Here, in the military arena, the US has a “comparative advantage” vis-a-vis the rival capitalist powers, with its established military forces and bases and core of support at home for intervention in the Third World. But the extent to which the Reagan administration has been able to displace the “Vietnam syndrome” is unclear. There does not seem to be a broad popular base in the US for any prolonged and costly intervention. Another limiting factor is that US allies/rivals like France and Britain have demonstrated a readiness to intervene for their own purposes and to withhold support for US interventions. With the completion of the Siberian gas pipeline, the Europeans are less dependent on US domination in the Middle East for their oil supplies and may increasingly decline to follow the US lead in the Third World.
For nearly four years, the Reagan administration has proclaimed “the magic of the marketplace” as its panacea for the US economy. Illiterate on fundamental matters of economic policy, the US electorate has accepted Reaganism with surprising equanimity, even as these policies grievously hurt many of its supporters across class boundaries. In a remarkably short period of time, the monetarists and their followers have managed a fundamental “destructuring” of the postwar system of state monopoly capitalism. This destructuring has been concentrated in two key areas: the relationship between the government and the corporations and the relationship between the corporations and their workers.
Regarding the state and the corporations, new approaches to the enforcement of antitrust law, environmental laws and bankruptcy laws have sped the centralization of capital. Business Week asserts that the attitude of the Reagan administration to “encourage combinations no matter where they occur” amounts to a policy of “industrial rationalization.” They claim this equals in scope and social impact the momentous rise of the trusts and the US shift to monopoly capitalism in the 1880s.  This new wave of centralization is essentially different from the mergers of the 1960s and 1970s. Corporations are today not interested in pursuing the conglomeration tendencies of the postwar period. Firms are now buying out or forming joint ventures with direct competitors domestically and internationally.
The new strategies are predicated on the need to cope with the growing internationalization of capital. For instance, Wheeling-Pittsburg, the number eight steel producer in the US, has recently formed a joint venture with Nishin Steel, Japan’s sixth largest steel producer. General Motors has formed a joint venture with Toyota to build small cars in the US: Together they control over 50 percent of the US auto market. There have been seven major mergers in the US oil industry since 1980. In Europe, AT&T has completed or proposed four joint ventures in the past four years. In all there were 2,533 mergers in the US in 1983 — in 1984 there will be even more. Deregulation of financial services and transportation industries has led to massive new combinations among banks, savings and loans, insurance companies, airlines and railroads. Most important is the qualitative trend toward greater centralization nationally and internationally. The rise of joint ventures is particularly significant, since by controlling protectionist tendencies the state has forced a “rationalization” of capital across national boundaries.
In theory, joint ventures could eliminate excess capacity on a global scale through the construction of global oligopolies, trusts and cartels. But the newly industrializing countries, investing heavily in a broad range of government owned and/or controlled firms, are not bound by the logic of the market. Reagan and his free market messiahs lack the magic to conjure away global overproduction coming from these nations. Here the market solution is insufficient, and “principles of the free market” are freely dispensed with. The recent US decisions limiting increased imports of Brazilian, Korean and Mexican steel demonstrate that there is one appropriate ideology of free trade for the “have” nations and another for the “have nots.”  This approach in steel reveals the intent to beat back the newly industrializing countries while preserving the trading area of Japan, the US and Europe as the special preserve of the corporations from these nations.
The Limits of Reaganism
Cutting wages and regulatory and raw material costs is not sufficient to reverse the stagnation brought on by the over-accumulation of plant and equipment on a world scale. The most obvious limit to such a strategy is the consequent elimination of the purchasing power of the masses to buy that which could be produced. Further, in a stagnating environment, firms are tempted to lower prices in order to capture market share. This eliminates the quick profits realized from wage cuts when all firms are forced to meet the competition. Without investment in new plant and equipment, capitalists and workers will remain idle. Productivity falters, unemployment rises, sales decline and long-term stagnation becomes an ever-present reality.
It is conceivable that time itself could whittle away over-accumulated capital. The US steel industry, for instance, has already scrapped a great deal of its industrial capacity. The problem here is that the newly industrializing countries are continuing to build new steel capacity faster than old capacity is scrapped in the advanced capitalist nations. The same is true in oil refining, autos, chemicals, shipbuilding and numerous other industries. Even joint ventures among the advanced nations are insufficient to rationalize the competition coming from the newly industrialized countries. Market systems are anarchic, not self-regulating. The commitment to the “free market” would seem to preclude US participation in efforts to rationalize international production through a supranational economic forum. Indeed, in its abandonment of the Bretton Woods system and on other occasions the US has repeatedly indicated its unwillingness to be disciplined or bound by international agreements that appear inimical to short-term US interests.
Rather than push toward international regulation and coordination, many have suggested that the US adopt an industrial policy in order to ride a new “high-tech” wave of investment out of the current trough of stagnation. This approach is fraught with questions of timing and scope. When would a new wave of technologies based in fiber optics, biotechnology, computers and integrated circuits come about? Would it be large enough to push the US economy toward full employment? Given the new logic of internationalization, would not the bulk of the investment and expansion induced by the high tech wave be realized outside of the US, where wages are lower and regulations non-existent? Since 1980, two million jobs were lost in the US in basic manufacturing while a scant 250,000 new jobs were created in the high-tech industries.  If there is anything to the high-tech argument, how could the US now construct an industrial policy which would compete with that of the German, French and Japanese industrial plans that are already in effect?  Finally, with France, Germany, Japan, Korea, Brazil and Mexico all pushing high-tech industrial capacity, how far is the global economy from the point of excess capacity in these industries as well?
Thus the considerable restructuring achieved via Reaganism leaves open two overriding issues. First, how will the great mass of workers — blue- and white-collar — be politically contained in an era of permanent unemployment and permanent low wages? Second, how will the rate of profit be maintained once the effects of wage cuts are matched by price cuts via national and international competition and once the short-run increases in profits due to “Reaganomics” wage and tax cuts are eliminated? (In a historical era of constant inflation there will, of course, be few literal “price cuts.” Rather, the costs of new machinery, advertising and interest will, in many industries, keep profit margins low even when wages fall. International competition from low wage nations and from nations that subsidize their exports will add to this tendency.)
The Third World debt crisis still threatens to bring down the international financial house of cards. The strong dollar, brought on by monetarism, has continued to deindustrialize the US economy, since domestic producers cannot compete with cheap imports. Meanwhile, adventurism in the Third World has brought the probability of war closer.
It is doubtful that the tendency toward short-term fixes, so entrenched in the US policymaking elite, can be thrust aside at this historical conjuncture. With the OECD predicting an average rate of unemployment in Europe of 12 percent in the first half of 1985, the potential for explosive ruptures in the international economic and political structure mounts. Neither the resiliency of capitalism nor the capacity of policymakers to “muddle through” should be underestimated. At the same time, the convulsive forces of this system that have brought us to the present dangerous impasse continue, with no resolution even remotely at hand.
 J. J. van Dujin, The Long Wave in Economic Life (London: George Allen & Unwin, 1983), pp. 178-79. Van Dujin enumerates 22 “major innovations” in 1930-1939, 16 in 1940-1949, 18 in 1950-1959 and only seven in 1960-1969. In the crucial period 1965-1969, when the rate of profit peaked and began to decline, there were only two. In the context of the new social structure of accumulation that merged the state with big capital and organized labor, the technologies of the 1930s through 1950s were often mutually supportive and interactive, encouraging a cycle of GNP investment, growth and further investment. There have been important technological innovations again since the 1970s and into the 1980s, but the impact on the US economy is much more uncertain. David Noble’s Forces of Production (New York: Knopf, 1984) discusses this ambigious and complex relationship between technical change and economic growth. He maintains that the thrust now toward automated factories and services may well cause social dislocation and unemployment on a scale like that of the industrial revolution in the eighteenth century. In this earlier period, though, industrial and geographic expansion absorbed this displaced labor on a large scale. It is difficult to identify the combination of forces that could play this role today and offset the marginalization of vast numbers of working people. See also, Phil Blackburn et al, “Science and Technology in Restructuring,” Capital and Class 18 (Winter 1982).
 Virtually all analysts agree that falling profits are a major cause of the structural crisis since 1970. For evidence regarding the US, Japan, Germany, France and the UK, see the Organization for Economic Cooperation and Development (OECD), Economic Outlook 33 (July 1983), p. 57.
 Fred Halliday, in The Making of the Second Cold War (London, 1983), notes the following: Ethiopia (September 1974); Cambodia (April 1975); Vietnam (April 1975); Laos (May 1975); Guinea-Bissau (September 1974); Mozambique (June 1975); Cape Verde and Sao Tome (July 1975); Angola (November 1975); Afghanistan (April 1978); Iran (February 1979); Grenada (March 1979); Nicaragua (July 1979); Zimbabwe (April 1980).
 As we shall discuss, overproduction of capital, in the context of growing internationalization of production, must be seen as the ultimate cause of the crisis. Corporations and the state, attempting to raise the short-term profit rate, have attacked the wage rate both directly and through massive shifts in the tax burden. In the US, the share of total income going to the top 10 percent of the population has jumped from 29 percent to 33 percent from 1969 to 1982, according to a Federal Reserve System study. This is the biggest shift in income to the rich since the 1920s. Washington Post, October 9, 1984. Such redistribution translates into declining purchasing power, since the rich tend to save a greater proportion of their income, and declining sales, production, profits and employment. Thus a vicious cycle of overproduction and under-consumption continues.
 From 1970 to 1980, US consumer debt increased 174 percent, mortgage debt rose 210 percent, non-financial corporate debt rose 249 percent, the Federal debt increased 139 percent. US President, Economic Report of the President, 1984 (Washington, DC: US Government Printing Office, 1984).
< OECD, Economic Outlook 33 (July 1983), p. 57.
 Economic Report of the President, 1982 (Washington, DC: US Government Printing Office, 1982), p. 79.
 “Will Money Managers Wreck the Economy?” Business Week, August 13, 1984; “Businesses Raise Plans for Spending,” Washington Post, September 12, 1984.
 Economic Report of the President, 1984, p. 222.
 Exports and imports of manufactured goods are considered important measures of the underlying power of industrial rivals; they are highlighted here for that reason. From 1973 to 1979, the US temporarily offset the effects of the long-term decline in its relative industrial power through competitive devaluations of the dollar. The cheap dollar gave a momentary boost to US exports of manufactures. This has been reversed by pressure from Europe and Japan since 1979. The overall balance of trade — manufactures plus raw materials plus services — has been negative since 1975. Between 1975 and 1981, US imports increased 170 percent while exports rose only 122 percent, leaving an overall deficit of $28 billion in 1981. This figure has soared to a record $126 billion in 1984. “Reagan’s Free Trade,” Economic Notes 52/7-8 (July-August 1984), p. 2.
 The productivity crisis allegations amounted to a “blaming the victim” approach to the origins and nature of the structural crisis. For a dissection of these allegations, see “Productivity Slowdown: A False Alarm,” Monthly Review 31 (June 1980); and Victor Perlo, “False Alarm Over Productivity,” Challenge 24 (January-February 1982).
 “Citibank’s Pervasive Influence on International Lending,” Business Week, May 16,1983.
 See, for example, “Steel’s Sea of Troubles,” Business Week, September 19, 1977; “The Oil Companies Are Sloshing in Ethylene,” Business Week, July 10, 1978; and Susan Strange, “The Management of Surplus Capacity,” International Organization 33/3 (Summer 1979).
 United Nations Industrial Development Organization (UNIDO), A Statistical Review of the World Industrial Situation (Vienna: UNIDO, 1982,) Table 1.3; OECD, Historical Statistics, 1960-1981 (Paris: OECD, 1983).
 “The Worldwide Steel Industry: Reshaping to Survive,” Business Week, August 20, 1984.
 Franz Schurman, in The Logic of World Power (New York: Pantheon, 1974) advocates the view that the US did have a coherent ideological vision and the capacity to transform this vision into reality after World War II. A similar approach, more subtly presented, is in Richard Barnet’s Roots of War (Baltimore: Penguin, 1973), particularly p. 125. NSC-68 and the “Clifford Memorandum” do prove intent and design. Yet there was a paucity of coherent thinking on ways in which to link economic, political and military power, as even Barnet acknowledges when he notes that policymakers are (and were) essentially ignorant of the realities within which they make policies (p. 117). Fred Block shows, in his Origins of International Economic Disorder (Berkeley: University of California Press, 1977) how the post-war “visionaries” were defeated in their drive to construct a Rooseveltian version of the IMF. Block also shows how the post-war monetary order developed slowly, in an ad hoc fashion, within the structural framework of the needs and demands of a global economic system under US hegemony. The post-war expansion was neither accident nor pure design. Moreover, it is the execution of that design through a variety of purportedly multilateral institutions and the ideological interpretation placed upon that execution (and the underlying element of design) that is stressed here. Both the execution and the ideological interpretation placed upon the new global order stressed a particular end at hand, and did not rise to a general analysis of events on a world scale. Joyce and Gabriel Kolko appreciate the slippage between design, execution and ideological interpretation arising from the “poorly fitting synthesis of moralism, charity, calculation and need” which comprised the fragile underpinnings of US foreign policy. See The Limits of Power (New York: Harper & Row, 1974), p. 27.
 Ricardo Parboni, The Dollar and Its Rivals (London: Verso, 1981), p. 50.
 Laurence Shoup and William Minter, Imperial Brain Trust (New York: Monthly Review Press, 1977), ch. 4.
 See Holly Sklar, ed., Trilateralism (Boston: South End Press, 1980).
 See Jerry Sanders, Peddlers of Crisis (Boston: South End Press, 1983), particularly chs. 5-9.
 Mark Obrinsky, “Facts about Small Business,” Economic Notes 50/12 (December 1982), pp. 8-9.
 The Department of Defense, with the strong support of the undersecretary for research and engineering, Richard DeLaur, is moving to make a miniature industrialization agency out of the Defense Advanced Research Projects Agency. Projects include advancing semi-conductor technology to maintain US dominance in this global industry, an “nth” generation computer, and new aeronautical designs to lower jet fuel consumption by 40 percent. NASA is moving quickly to turn over new space technologies to US super-corporations. See “A New Wave in Wing Design,” Business Week, July 19, 1982; “Chip Wars:The Japanese Threat,” Business Week, May 23, 1983; “Reagan Is Boosting Business in Space,” Business Week, August 29, 1983; and Bruce Steinberg, “The Military Boost to Industry,” Fortune, April 30, 1984).
 See Jeff Frieden, “International Finance and The Third World,” MERIP Reports 117 (September 1983).
 Labor-Industry Coalition for International Trade (LICIT), formed in 1980, is the best institutional example of this tendency. LICIT combines eight large US corporations from the steel, glass, rubber, machine-tool, minerals, chemicals, electrical equipment and lumber industries with the major unions of these industries, plus the two largest textile workers unions. LICIT sees the unconditional embrace of the “free market” ideology by the new right as its nemesis. As of April 1983, the LICIT group was composed of the following corporate members: Bethlehem Steel, Corning Glass Works, B. F. Goodrich, Ingersoll Rand, St. Joe Minerals, W. R. Grace, Westinghouse and Weyerhauser. Union members were: Amalgamated Clothing and Textile Workers, Communication Workers of America, International Union of Electrical, Radio and Machine Workers, International Brotherhood of Electrical Workers, American Flint Glass Workers, Industrial Union Department, AFL-CIO, International Ladies Garment Workers Union, International Association of Machinists and Aerospace Workers, United Paperworkers International Union, United Rubberworkers of America and the United Steel Workers. LICIT’s views are lucidly expressed in their International Trade, Industrial Policies and the Future of American Industry (Washington, DC: LICIT, 1983).
 OECD, Economic Observer 122 (March 1983), p. 22.
 See James Cypher, “Capitalist Planning and Military Expenditures,” Review of Radical Political Economics 6/3 (Fall 1974), pp. 1-20; and “Back to the Bomb: The Ebb and Flow of Military Spending” in Union of Radical Political Economists, editors, US Capitalism in Crisis (New York: Monthly Review Press, 1978), pp. 168-173.
 “How the New Merger Boom Will Benefit the Economy,” Business Week, February 6, 1984.
 New York Times, September 19, 1984.
 Michael Hillard, “Employment Growth: False Promises,” Economic Notes 52/2 (February 1984), p. 3.
 Labor-Industry Coalition for International Trade’s International Trade, Industrial Policies and the Future of American Industry (Washington, DC: LICIT, 1983), offers a concise summary of the policies of these nations and the vast institutional lead they have in this area.