Capital Out-of-Order
Capital Out-of-Order
Investigating the mechanics of globalized neoliberalism
Late last month, the 15th annual BRICS summit convened in Johannesburg, South Africa, between the chief executives of participating countries—except of course Vladimir Putin, precluded from attending physically due to a warrant by the International Criminal Court—at which President Cyril Ramaphosa of South Africa announced that Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates have been invited to expand BRICS and will become members of the international bloc on the first of next year.
Richard Medhurst’s reporting from that same week offers a tidy analysis of the impact we can expect from one of the summit’s other noteworthy developments: the bond issuance and lending policy announcements of BRICS’s New Development Bank.
No one actually expects to wake up tomorrow morning and, y’know, the dollar is gone, sanctions are gone, the weaponization of the greenback is gone. What BRICS is doing, however […] the original five, they created a bank known as the New Development Bank, or NDB. Now this BRICS bank […] they have issued, this month, bonds in South African rand, and in two months, in October 2023, the NDB will issue bonds in rupees. The NDB just announced that it will issue 30% of its loans in […] currency that belongs to BRICS members: roubles; rupees; no U.S. dollars for that one-third of their loans.
Putting into context what he regards as a monumental announcement, Medhurst contrasts the NDB’s new lending practices, and the guiding ideology behind them, against those characteristic of older institutions of international finance:
The New Development Bank really is about development […] the NDB genuinely wants to help countries build themselves up, specifically in the global South. The NDB has 100 billion dollars in capital, which means they can borrow hundreds of billions of dollars more if they need to. The NDB is not BRICS’s equivalent to the International Monetary Fund [IMF] or the World Bank […] it is their solution to these two institutions, the World Bank and the IMF, who are infamous for robbing and debt-trapping poor, developing countries […] They’re no better than a loanshark in some dark alley. There are always strings attached, and these are the worst of conditions you can imagine. The true objective of the IMF and the World Bank is to control countries by keeping them trapped in debt.
The New Development Bank, then, attempts to address the macroeconomic dysfunction and uneven distribution of economic growth resulting from “the capital order,” as I’ve taken (after Clara Mattei) to calling it. Of course, faithful readers will know that, for a couple months now, my dispatches have taken aim—directly or indirectly—at our world’s global capital order: at, that is, the dynamics that influence and the overarching institutions that govern the global economy, which together enforce private ownership over the means of production, prioritize corporate profits with socialized costs, and facilitate the unequal distribution of wealth.
The dynamics I’m talking about encompass the interconnected web of economic, political, and social forces that maintain and perpetuate hierarchies of power and wealth, with oligarchs and corporations exerting significant influence over decision-making, policy formulation, and resource allocation.
The governing institutions of this capital order are numerous enough for a specialized encyclopedia. Our dispatch on the bizarre definition of “communism” in the traditionalist-reactionary dialect touched briefly on one: the Bank for International Settlements (BIS), described by Roseanne Barr as the institution to which would lead any investigation into how “every penny on this Earth is accounted for,” and by Jones as controlling “the global system […] running all of it” since the Marshall Plan was enacted to fund European reconstruction following World War II.
On this topic, we won’t spend much time with Barr and Jones. In fact, let’s forget the details they supplied: if I recall correctly, both were drinking whiskey during the interview, so we’ll forgive them any mistakes here. Instead, let’s do our own research (gasp) to find out more about the relationship between the Bank for International Settlements and the global capital order.
The BIS’s website describes how, since 1930, the BIS has promoted monetary and financial stability among central banks and international financial institutions. Acting as a forum for central banks and financial authorities to exchange information, collaborate on financial and monetary matters, the BIS purports itself to do little more than facilitate cooperation and collaboration among central banks by providing a platform for discussions, information exchange, and research on various economic issues related to global financial stability.
Writing in 2020, Karthick Nambi gives us more details on the bank’s founding:
The central banks of England, Italy, Spain, Germany, the United States, and Japan came together to form the Bank for International Settlement or BIS. The countries contributed 500 million dollars to the bank to revamp the German economy. The investors will receive returns on the investment as a yearly payout. Germany will pay its repatriation to the BIS, which will yield interest to the founders.
The BIS financed the capacity of the German government to pay the monumental reparations imposed in the Versailles Treaty—“equivalent to one-third of the world’s gold reserve”—which had wrought the economic catastrophe that the BIS was established to help alleviate, at least until Hitler canceled payments in 1933.
We should note here the presence of the central bank of Italy among those that financed the rise of the Third Reich. As you may recall from the first Radio Free Pizza dispatch to cover the work of Clara Mattei, the capital order engineered the rise of Fascist Italy in the 1920s. Even more interestingly, Montagu Norman, Governor of the Bank of England (BoE) from 1920 to 1944—whom Mattei quotes from his personal correspondence with Jack Morgan of J.P. Morgan & Co. (which lent $100 million to Italy in 1925) as approving of Mussolini’s regime—appears also in a sordid chapter from the history of the BIS involving Nazi Germany.
As Adam LeBor reports, “the eccentric but ruthless governor of the Bank of England agreed to surrender gold owned by the National Bank of Czechoslovakia” when the fascist state that the BIS had financed finally launched its invasion of Czechoslovakia in March 1939.
The Czechoslovak gold was held in London in a sub-account in the name of the Bank for International Settlements, the Basel-based bank for central banks […] Czech directors were ordered, on pain of death, to send two transfer requests. The first instructed the BIS to transfer 23.1 metric tonnes of gold from the Czechoslovak BIS account, held at the Bank of England, to the Reichsbank BIS account, also held at Threadneedle Street.
The second order instructed the Bank of England to transfer almost 27 metric tonnes of gold held in the National Bank of Czechoslovakia’s own name to the BIS’s gold account at the Bank of England.
To outsiders, the distinction between the accounts seems obscure. Yet it proved crucial—and allowed Norman to ensure that the first order was carried out.
Norman found his excuse in the legal framework that established the BIS. As LeBor explains, “The BIS is a unique hybrid: a commercial bank protected by international treaty. Its assets can never be seized, even in times of war. It pays no taxes on profits.” Therefore, the BoE argues to this day, “to refuse the transfer order would have been a breach of Britain’s treaty obligations with regard to the BIS.”
Perhaps those treaty obligations seemed valuable enough to honor for the sake of dealing with the BIS after the war. LeBor quotes the BoE’s own documents: ‘‘‘The general attitude of the Bank of England directors [toward] the BIS during the war was governed by their anxiety to keep the BIS to play its part in the solution of post-war problems’.”
However, this justification is complicated by the fact that, “all through the war, the Reichsbank continued paying interest on the monies lent by the BIS. This interest was used by the BIS to pay dividends to shareholders—which included the Bank of England.” Nonetheless, concern over economic challenges following the end of the war wasn’t limited to the BoE. In fact, the BIS’s own history describes alternatives proposed in addressing the predicted problems:
In July 1944, a United Nations conference met at Bretton Woods in the United States to discuss the postwar international monetary system. The Bretton Woods Conference adopted a resolution calling for the abolition of the BIS ‘at the earliest possible moment’, because it considered that the BIS would have no useful role to play once the newly created World Bank and International Monetary Fund were operational. European central bankers held a different opinion, and successfully lobbied for maintaining the BIS. By early 1948, the BIS liquidation resolution had been put aside. It was understood that henceforth the BIS would focus foremost on European monetary and financial matters.
Recalling the association drawn above by Jones between the BIS and the Marshall Plan, one must be forgiven for presuming that the BIS might have financed the postwar reconstruction. Eric Toussaint disabuses us of that notion, describing instead how the prospect of establishing a trade surplus to maintain its levels of domestic employment persuaded the U.S. to provide grants to European countries, rather than loans through the World Bank that would require repayment. As Toussaint explains, the approach of the Marshall Plan stands in stark contrast to that taken for the rest of the globe:
Loans with interest have been the main instrument used to allegedly finance the Third World’s development […] Creditors consider that it is in their better interest to maintain developing countries in a permanent state of indebtedness so as to draw maximum revenues in the form of debt reimbursement, but also to enforce policies that serve their interests and to make sure that they remain loyal partners within the international institutions.
This echoes, of course, Medhurst’s reporting (quoted at the top of this dispatch) that describes both the World Bank and the IMF as predatory lending institutions that keep a stranglehold on the growth of the developing world.
Of course, the institutions themselves would seem to disagree. According to its website, the World Bank provides financial assistance and technical policy advice to developing countries to help them achieve long-term economic growth and poverty reduction. Similarly, the IMF’s website describes how it provides financial assistance to member countries facing balance of payments problems and offers economic policy advice, ostensibly to prevent financial crises and support countries in their efforts to maintain stable economies.
Given the BIS’s postwar focus on European monetary and financial policy, the World Bank and International Monetary Fund (IMF) seem like more probable candidates for the institutions running Jones’s “global system” today. Meanwhile, I find no shortage of evidence (at least when I go looking) suggesting that the World Bank and IMF exploit developing countries in just the way that both Medhurst and Toussaint described above: in fact, for two decades I’ve considered this common knowledge since John Perkins’ Confessions of an Economic Hitman appeared in 2003.
Worth a read however you can find it, that text supplies us with a prime example of how the IMF has acted as an apparatus of a capital order that impoverishes the masses:
During the 1973 OPEC oil embargo, petroleum prices skyrocketed and Venezuela’s national budget quadrupled […] The international banks flooded the country with loans […] Then, in the 1980s […] oil prices crashed, and Venezuela could not repay its debts. In 1989, the IMF imposed harsh austerity measures and pressured Caracas to support the corporatocracy in many other ways […] Between 1978 and 2003, Venezuela’s per capita income plummeted by over 40 percent.
Moreover, in Perkins’ telling, the example of Venezuela’s impoverishment (due in part to the IMF’s predatory lending practices) seems to match a worldwide pattern through the last half of the 20th century:
The income ratio of the one-fifth of the world’s population in the wealthiest countries to the one-fifth in the poorest countries went from 30 to 1 in 1960 to 74 to 1 in 1995. And the World Bank, the U.S. Agency for International Development [USAID], the IMF, and the rest of the banks, corporations, and governments involved in international “aid” continue to tell us that they are doing their jobs, that progress has been made.
Though we’d need more than the explosion of global income inequality to confirm the Venezuelan example reflects a worldwide trend—requiring, I think, data demonstrating a concomitant crash in per capita income for developing countries, weighted according to how much foreign aid they’ve received—it’s clear that economic growth has been unevenly distributed, which I’m sure none would contest.
Regardless, however, we have other examples of the foreign imposition of technocratic policymaking on an indebted developing country as a strategy of the capital order. The aforementioned Mattei points to the 1920s loans provided to Fascist Italy in exchange for austerity measures as an ancestor of the IMF’s modern style. Expanding our scope to the World Bank—that other institution developed at Bretton Woods in 1944 in part to replace the BIS—we find another example of the international monetary system working to impose neoliberal economic policy on developing countries in the World Bank’s own “Financing Health Services in Developing Countries: An Agenda for Reform” (1987).
That policy study proposes four key policy reforms for managing healthcare in developing countries:
“Charging users of government health facilities”: “This will […] increase access for the poor.”
“Providing insurance or other risk coverage”: “governments cannot raise government hospital charges close to costs until insurance is widely available.”
“Using non-government resources effectivity”: “Encourage […] nonprofit groups, private physicians, pharmacists, and other health practitioners […] to provide health services for which consumers are willing to pay.”
“Decentralizing government health services”: “When setting national policies and programs, use market incentives where possible to better motivate staff and allocate resources.”
Overall, the release emphasizes the relief to national budgets that privatized healthcare would afford developing countries and suggests that a higher standard of care for patients (along with increased personal wealth from a reduced tax burden) would result from its implementation.
Sounds benevolent, right? But some, like WHO advisor Adriano Cattaneo (at~0:32 in the video below), see these proposals as:
[T]aking the world health system to Wall Street. It is the opposite of what’s written in the Declaration of Human Rights and in many constitutions, where health is considered a right and not something that comes from the crumbs that the rich make available to the poor to pay for a medicine or a vaccine. It is a distortion of what should be a human rights approach to health.
Presumably, developing countries at risk of default would need to implement such “reforms” and privatize their healthcare services to refinance any loans the World Bank provided.
Of course, the IMF and World Bank aren’t the only institutions that have reinforced the neoliberal regime. For details on others, we can turn to Matthew Kennard. In his interview with Novara Media, the journalist discusses his 2023 book Silent Coup: How Corporations Overthrew Democracy, and provides a brief history (starting at ~3:00), reaching back even further than the work we’ve covered so far:
Originally, corporations were chartered by the [British] Crown, so it was a privilege to create a corporation, it wasn’t a right. Then there was a civil rights battle […] in the 19th century where lots of legislation came into place that unleashed the corporation from the state in the U.K., then later the U.S. Then […] the Bretton Woods institutions, which were created in 1944, and that was the IMF and the World Bank principally but also later on the General Agreement on Tariffs and Trade (GATT), which […] in 1995 became the WTO […] [and] that whole architecture allowed corporations to really go international.
I suspect this phenomenon of recognizing corporations as a locus of tension in civil rights will be familiar to American readers from 2010’s Citizens United v. FEC, as covered in a past dispatch. However, as Kennard explains (at ~4:27), that phenomenon has resulted in an international monetary system and global trade framework under which corporations gain greater rights than the representative governments that contract and license them:
After the Second World War, formal empires were collapsing at quite a quick clip, particularly in the ’50s and ’60s, and the people who had been in power for centuries—the imperial powers and their financial sectors—were scared. They were thinking, “How are we going to maintain our control of the world where we don’t have a formal empire, where we can’t position garrisons of troops in a foreign place that can just take out a leader?” […] This sounds like tinfoil-hat stuff, but it’s all there in black-and-white in the archives of places like the World Bank, the IMF, and other places […] They wanted to create a supranational system whereby they could bypass rebellious peoples, bypass newly liberated countries, bypass liberation movements in the developing world.
That supranational system would allow the enterprises of the financial sector and other industries to extract capital from developing countries with the same broad license as they enjoyed under the colonialism of past centuries.
Moreover, Kennard goes on to detail (at ~5:45) how the Investment Court System (ICS), and the Investor-State Dispute Settlement (ISDS) regime that it administers, act as the capital order’s primary enforcement mechanisms:
This is a shadow legal system whereby multinational corporations can sue states for enacting policies they don’t like, which infringe on their “investor rights” […] This system is enshrined in free trade agreements, which are a bit of a misnomer because “free trade agreement” makes you think it’s all about mutual lowering of tariffs, but […] embedded in these trade agreements are huge amounts of legal mechanisms whereby corporations can enforce their will on the countries that are part of that agreement. One of these is the ISDS system […] The other part of this is what are called Bilateral Investment Treaties, or BITs […] between two countries […] ISDS is enshrined in nearly all of those […] So in the case of a corporation that wants to use a BIT […] you can just create a shell company in a country that has a BIT with the country you want to sue and just sue them that way […] So there’s this whole web of treaty agreements which enshrine this ISDS system and what it means […] is that corporations can sue some of the poorest countries in the world for huge amounts of money.
The capability of a multinational corporation to, for example, sue a country in the ICS for refusing to grant it an environmentally destructive permit—as Kennard tells us happened to El Slavador—reflects their ascendancy over even the nation-state in today’s global capital order. So, of course it will surprise none of you that (as Kennard tells us at ~7:56) the World Bank sits at the center of the ISDS regime:
Most of these cases are heard at a place called the International Center for the Settlement of Investment Disputes (ICSID) which is a part of the World Bank […] created in 1966 at the height of decolonization and […] it’s also a kangaroo court, because these decisions are made by three arbitrators: one appointed by the company, one appointed by the government, and one agreed on by both these arbitrators […] there’s no threshold for legal history or any kind of professional attainment but we found that a lot of them have come from from U.S. administrations […] my point is that it's not just the cases that are heard at ICSID […] because if you have this huge infrastructure in place, this huge web of economic arrangements whereby multinationals can sue you […] it impacts on your thinking when you’re devising policies in your countries.
(…In fact, if the mechanisms of the capital order have such influence that the opinions of multinationals even restrict even what politicians consider possible or feasible, then it seems to me that they might even act as a vector for cultural austerity—nope, just kidding, that horse might yet survive but it needs a lot of rest.)
Exploring the institutions and dynamics of the capital order unveils a multifaceted tapestry of institutions and influences that shape our global economy and, indeed, craft so many of our countries’ domestic policies. The BIS’s origins, intertwined with post-World War I reparations and the rise of Nazi Germany, reveal a complex web of financial and political interactions ostensibly designed to promote global stability and growth, but in practice trapping developing countries in debt and extracting multinational corporate profit. Within the globalized neoliberal regime those institutions promoted, multinational corporations have emerged as powerful actors, wielding geopolitical influence through mechanisms like the ISDS regime. The evolution of the corporation from colonial-era charters to modern-day international players has redefined power dynamics on a global scale.
While the initiatives of the New Development Bank announced last month seem poised to present a viable alternative to the IMF and World Bank as international lenders, what impact this may have on the ISDS regime, and on other institutions of the global capital order, remains to be seen. In the meantime, however, examining these institutions’ growing histories of coercive extractions allows us to examine the intricate relationships that have long tied economic forces to political agendas, and to witness in them how the capital order blurs the lines between international cooperation and imperial decree while promoting (or, alternatively, imposing) fiscal and monetary policies upon governments and consumption patterns upon citizens that align with the interests of the ruling class, in the interest of maintaining power dynamics, political structures, and socioeconomic hierarchies favorable to the global capital order.
Understanding the institutions that have supported the capital order is essential to comprehending the intricate mechanisms that govern our global economy and manipulate societies worldwide. The interplay of institutions, corporations, and policies underscores the complexity of our world and underscores the ongoing need for critical analysis and inquiry into the capital order as a hegemonic force critical in shaping national economies, government policies, international trade, and the distributions of both resources and revenues in countries across the globe. While BRICS’s New Development Bank plans to offer developing nations an important alternative to the World Bank and the IMF—one exciting enough for Medhurst to say above, about the denomination of its bond issuance, “This is explosive; this is colossal”—I expect that, nonetheless, examining the history and practices of the institutions that the NDB seems poised to supplant will serve us well in analyzing and critiquing the multipolar capital order now emerging in our world today.