The Empire Strikes Out

How American empire is a net drain—even for Americans.

By Ryan Cooper

Tagged EconomicsImperialism

During the run-up to the invasion of Iraq in 2003, anti-imperialist leftists commonly argued that the real motivation for the war was to secure the country’s oil supplies. “No blood for oil,” went a common chant at anti-war rallies.

Of course, opposing the war was absolutely the correct move. Whether the war was chiefly about oil is highly debatable, but if we grant for the sake of argument that it was, then we must also conclude that the price was uneconomical in the extreme. The cost of the invasion has run at something like $2 trillion, depending on the estimate. At the 2017 rate of U.S. oil consumption, and a price of $60 per barrel (roughly the going rate at the time of writing), $2 trillion could have purchased more than four years of supplies—which we have had to purchase anyway, in addition to the tremendous cost of war. Indeed, given that Iraq’s oil reserves are estimated at about 140 billion barrels, the United States could have bought nearly a quarter of Iraq’s entire reserves outright for the price of the war.

There were and are far cheaper ways to secure oil supplies than deploying hundreds of thousands of soldiers (and committing to a lifetime of future health-care costs), purchasing and maintaining tens of thousands of pieces of hideously expensive military hardware, operating a 7,000-mile supply chain for nearly a decade, and spending the money it took to stand up a new government in a foreign land.

Whether that war was definitionally “imperialist” or not, nobody can doubt the fact that the United States operates a global empire. It has military bases and soldiers spread across the globe, from Korea to Germany to Afghanistan. It meddles constantly in the affairs of other nations, from sanctions on Iran and Russia to effective control over the basic machinery of global finance. But the stupendous waste of the Iraq war points to an important, yet oft-neglected question: What is the economic basis of that empire? Is this empire economically necessary for us to maintain our standard of living? Or is it neutral vis-à-vis the majority of the American public—even possibly a net drain?

The empire is moderately beneficial to the broad American citizenry in some ways—for example, it allows the United States to take up a vast share of world resources and, in doing so, helps keep taxes low. But it mainly benefits a tiny minority of investors and corporate executives, who exploit American power to pillage developing countries with slanted trade deals and tax avoidance schemes, then keep the profits for themselves. And it gets even worse, because furthermore, those elites do not hesitate, in turn, to exploit the American population in ways that are similar to how they exploit the rest of the world’s poor. Americans who hold underwater mortgages, or who are paying through the nose for medicine, are victims of the exact same imperial machinery.

Imperialism has changed a great deal from the glory days of the British Empire. Today its primary function—carried out at awesome expense to the U.S. taxpayer and soldiery, not to mention poor nations—is to protect the profits of a small class of business elites. The welfare of the American public barely enters into the equation at all. So even setting moral questions aside, the empire simply isn’t worth it.

And if we were to dismantle the empire, almost everyone, Americans included, would benefit. The portions of it that are most directly exploitative harm American citizens just as they do poor foreigners. And while it would take a drastic overhaul of the American economy to make it more efficient, Americans could enjoy the same prosperity they currently do while not victimizing the Global South.

Of course, many historical empires have been quite profitable. Like warlords throughout history, Napoleon financed much of the cost of his wars of conquest through booty and tribute obtained by force. Many colonial possessions have also been wildly profitable, from the huge sugar profits obtained from Saint-Domingue (now Haiti) by France and for the UK from Jamaica, to the ivory and rubber profits obtained by Belgium’s King Leopold II at gruesome cost in the Congo Free State.

The British Empire had a sound business logic to it, at least for most of its existence. As Sven Beckert writes in Empire of Cotton, before the Industrial Revolution, India and China were the main sources of the world’s manufactured textiles. That changed with the advent of factory production in the UK in the late eighteenth century, which produced a flood of cheap textiles. India was opened up to cheap textile imports at British gunpoint, which wrecked its manufacturing base.

The profits were enormous—but the social carnage was unimaginable. Deindustrialization removed a main income source for millions of Indians, while unaccountable British colonial authorities were often unresponsive (or worse) to Indian needs. The UK was heavily dependent on its colonies to create wealth. In fact, at about the height of British imperial power in 1870, India constituted roughly half of British imperial GDP, and Britain itself only a bit over one-third.

The economy of the modern United States, however, works very differently than nineteenth-century European empires. Today, America’s colonial possessions (Puerto Rico and a few smaller islands) create less than 1 percent of overall U.S. economic output. Where the traditional colonial economic system was based on pinning down weaker nations to force them to buy exports, the U.S. economy has continued to develop in large part through a vast internal market for domestic consumption, which accounts for 68 percent of U.S. GDP. This has proved to be a much larger source of economic strength. Statistics are necessarily somewhat foggy over such a long period, but modern America is roughly 14 times more wealthy than 1870 Britain in per-capita terms.

So the days of classical colonialism are long past. How, then, does the modern American empire work?

There are four primary ways: The U.S.-dominated world finance system, which protects its enormous share of world resources by keeping the Global South impoverished; its protection of tax havens and capital flight system that enable looting of poor countries; its direct intervention on behalf of well-connected corporations; and its global military apparatus.

Let’s start with international state finance system. I’m referring here to the IMF, World Bank, and other agencies backed by U.S. power that extend loans to countries in financial difficulties. These “rescue” packages have indeed been disastrous in many cases, as IMF “structural adjustment” policies typically followed the “Washington Consensus” neoliberal dogma of austerity, interest rate increases, tax cuts, privatization, and so on. Imposed after financial crises in Latin America and East Asia, these programs only worsened the problems in countries from Mexico to Thailand.

And the direct benefits to the United States of these austerity programs have been marginal at best. To be sure, a few bankers have made out like bandits lending to crisis-stricken countries—as the United States did things like veto IMF suggestions to create an international bankruptcy process in the IMF, so American bankers would not have to write down bad investments. But the overall payments are not that large. According to the World Bank, total interest payments from low- and middle-income countries on external debt were only $240 billion in 2017—no doubt a sizable sum for those countries, but a drop in the bucket of the global economy. East Asian countries took to building up massive dollar asset hoards to protect themselves from international meddling, which helped ward off these kinds of interventions.

However, keeping the Global South poor does protect America’s wildly disproportionate share of world resources. Some argue that poor countries like the Democratic Republic of the Congo (DRC), which is a leading exporter of key raw materials like coltan, are that way because they are cheated by the world trade system. Yet paying these Congolese miners, who are no doubt horribly exploited, fair prices for imports would not truly affect the American economy that much, because most key commodities are common and not actually that difficult to obtain—for instance, in 2006, Canada and Brazil were major sources of coltan, before they were undercut by miners using cheaper labor in Rwanda and the DRC.

In other words, no, current American prosperity does not depend on Congolese miners being paid poverty wages, but it does depend on the whole Global South population not gobbling up an American-sized share of resources, because the planetary ecosystem couldn’t handle it. Americans are less than 5 percent of the world’s population, yet consume perhaps a third of the world’s paper, a quarter of its oil, coal, and aluminum, and a fifth of its copper. Intentionally or not, IMF “rescue” programs that strangled developing countries protected that hugely unfair share of the planetary bounty. Conversely, as China alone has avoided the IMF sandpit and reached middle-income status, it now emits more than twice as much carbon dioxide as the United States, posing an enormous threat to the global climate.

On the other hand, if the American economy could become more efficient, there would be some countervailing effects from allowing poorer countries to develop and take up a fair share of global resources: If they were richer, they would be able to purchase more U.S. exports. China, for instance, has become one of the most important markets for American electronics, movies, agricultural products, and so on. Mexico purchased $265 billion in U.S. exports in 2018, and would certainly buy more if it were richer. Consider the Pixar film Coco, which became the biggest hit in Mexican movie history in 2017, taking in over $57 million there alone.

Congo, on the other hand, with its wretchedly poor economy, can barely keep its people alive, let alone buy iPhones or video games in large quantities. The IMF keeping Africa impoverished may make gasoline much cheaper in the United States—but it forecloses the potentially enormously profitable development of vast new consumer export markets.

There is a similarly double-sided effect to international capital flight machinery like tax havens, international transfers, trade misinvoicing, and so on. Global Financial Integrity and the Centre for Applied Research at the Norwegian School of Economics estimated in 2016 that developing countries have lost some $16.3 trillion since 1980 from these practices. As they rightly point out, this has been deeply poisonous to rickety post-colonial states, enabling the development of oligarchs and warlords who smuggle out billions looted from their own countries—and stash it in rich countries in the form of tax haven accounts, real estate, sham corporations, among others.

Foreign companies have also helped sustained corrupt political systems in poor countries by bribing local authorities to avoid paying taxes, helping perpetuate the cycle of underinvestment and poverty. An Oxfam report found that in 2010 alone, multinationals cheated African countries out of at least $11 billion in taxes.

But this machinery has also been used by rich Americans to hide their wealth from taxation. Economist Gabriel Zucman estimated in 2015 that 8 percent of all the world’s wealth, or $7.6 trillion, is held overseas—half coming from Europe and the United States. Four percent of U.S. wealth, or $1.2 trillion, is protected from taxes in this way. Once again, as with the multinational companies that benefit from the cheap price of raw-material imports, the real beneficiaries here are a tiny transnational wealthy elite.

Another part of the global financial empire is the dollar being the world reserve currency. This creates a strong demand for dollar-denominated assets, especially U.S. government debt, meaning that other countries can settle their international accounts and protect themselves from speculative attack. This does indeed allow the American government to borrow much more cheaply than most other countries, and it permits the United States to run a gigantic trade deficit that would be impossible for other countries. That is also one reason why the United States has managed to scrape by with such a low tax level—taking up about 7 percentage points of GDP less than the OECD average.

That’s a benefit for sure—but there are downsides as well. Republican administrations consistently exploit U.S. borrowing capacity to simply cut taxes on the rich, benefiting few outside the top 1 percent. The trade deficit allows for more imports that would otherwise have to be financed, but as economist Dean Baker points out, on the other hand, that amounts to shipping U.S. demand to foreign countries. Without the dollar privilege there would be considerably more domestic production—and thus more jobs for the American public (more on this later).

That brings me to the third and most obvious cases of imperial economic power—direct foreign intervention on behalf of business, where the state’s military or diplomatic power is used to protect American companies overseas. Many of these go way back in time, from the “banana republics” of the United Fruit Company backed by American military power in the early twentieth century (“I was a gangster for capitalism,” wrote U.S. Major General Smedley Butler), to the 20-year occupation of Haiti to protect a U.S. sugar company. Today, this is more likely to take a form like presidents pushing slanted trade deals to protect the profits of U.S. pharmaceutical, entertainment, and financial companies.

Take the drug industry. President Bill Clinton badly worsened the developing AIDS epidemic in southern Africa by attempting to stymie South African President Nelson Mandela’s plan to import cheap drugs from non-U.S. countries. President Obama consistently pushed to limit access to cheap generic drugs for poor countries, particularly through provisions in the failed Trans-Pacific Partnership, leading to multiple acrimonious disputes with Doctors Without Borders, among others. The obvious motivation was to jack up profits for American drug firms.

These cases unarguably constitute economic imperialism, reflecting the fact that business elites have tremendous influence over the machinery of the American state. But only a small fraction of the population works in those industries—and an even smaller group of investors and executives collect most of the profits.

Those high drug prices have been disastrous for Americans as well. As of 2015, the United States spends some $1,443 per person on prescription drugs—over twice what France spends, and nearly three times what the Netherlands spends—entirely because of this corporate profiteering.

After years of steep price hikes on insulin—a century-old medication—diabetic Americans are routinely bankrupted by drug costs, and some have died. And it’s not just insulin. The EpiPen cost about $76 in 2001 but after Mylan Pharmaceuticals bought the rights to the technology in 2007 it jacked up the price; by 2016 it cost $634 for a pack of two.

Even more outrageously, the research behind these treatments has often been funded by state laboratories, grants, or research contracts, including the EpiPen and HIV prevention treatment Truvada for PrEP, which costs $1,600-$2,000 for a monthly supply here (in South Africa, the price is $6). Elsewhere, Purdue Pharma and other companies raked in billions by stuffing American communities to the gills with highly addictive opioid pills. Wholesalers shipped 780 million such pills into West Virginia alone over just 6 years—or 433 per resident. One consequence has been 400,000 overdose deaths from 1999-2017. (Chinese people from the 1850s would no doubt commiserate.)

Or consider manufacturing. Trade deals that protect well-connected drug or entertainment firms have also devastated the American industrial base. When President Clinton signed a bill granting China permanent normal trade relations in September 2000, manufacturing employment crashed by nearly 20 percent in just four years, as companies shipped their factories across the Pacific en masse.

Now, as noted above, this did create the benefit of a lot of dirt-cheap imports of textiles, electronics, and so on from globalized firms exploiting cheaper labor. Walmart and Amazon are full of such products. But it came at the cost of millions of American jobs—sapping demand and creating highly concentrated harms in factory-dependent communities.

Or consider finance. U.S. authorities and trade negotiators have consistently pushed for the removal on restrictions of capital flows. Great swathes of the world have thus been opened up to Wall Street penetration, helping spark clockwork financial crises.

But this type of financial deregulation and policy priority has created awesome disaster within the United States as well. For one of many examples, consider the 2008 crisis.

In the mid-2000s, financial firms inflated a massive housing bubble by aggressively issuing mortgages, then bundling them into securities to obscure the fact that many of them (the infamous “subprime” loans) could not possibly be repaid. When the bubble popped, the world financial system seized up and nearly collapsed.

Wall Street was saved from its own misdeeds with hundreds of billions in cash through the TARP bailout, and trillions in credit from the Federal Reserve.

But ordinary homeowners got no such kid-glove treatment. As part of the TARP negotiations in 2008, House Democrats had inserted a big rescue package to help homeowners, granting incoming President Obama wide latitude to adjust interest rates, repayment schedules, principal reductions, or anything else he deemed necessary.

Treasury Secretary Tim Geithner nonetheless pursued housing policy to help the banks even more. He pushed Obama to renege on his promise to support “cramdown”—that is, allowing the value of one’s primary mortgage to be reduced to the actual value of the home in a bankruptcy proceeding. This would have harmed banks by forcing them to accept losses, so unsurprisingly it didn’t happen.

Then, in the actual homeowner rescue program (Home Assistance Mortgage Program, or HAMP), Geithner forbade principal reductions, for the same reason he stymied cramdown. Moreover, the program was such a Kafkaesque bureaucratic nightmare that few even tried to enroll, and many who did were actually pushed into foreclosure due to the program’s wretched design, as David Dayen writes in Chain of Title. The point, as Geithner straight-up told Elizabeth Warren, was to “foam the runway” for the banks by stringing out foreclosures so they didn’t come in too fast. Overall, about 9 million people lost their homes due to the crisis—and untold millions more were stuck paying on inflated underwater mortgages.

Then, when it turned out that banks had been illegally foreclosing on people with forged paperwork, produced at industrial scale by so-called “robosigners” (because banks had not kept track of their documents during the go-go bubble years), Obama let them off the hook again. As Jesse Eisinger writes in his book The Chickenshit Club, only one measly mid-level bank employee actually went to jail for that crime or hundreds of other financial crimes stemming from the financial crisis.

Top law enforcement officials straight-up admitted taking the size of financial institutions into account when deciding whether to prosecute. Then-Attorney General Eric Holder testified to a Senate committee in 2013 that “I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute … it will have a negative impact on the national economy.” (He unconvincingly walked back his statements immediately afterward.)

The wealth of the rich recovered nicely along with the stock market, but middle- and upper-middle class home wealth was devastated. As Matt Bruenig and I have calculated, from 2007 to 2016, the top decile of white families increased their wealth by 15.5 percent, while wealth of the eighth and ninth decile of black families declined by around 30 percent.

Fourth and finally, let’s consider the American military. This is surely the clearest example of U.S. imperialism in the modern age.

Post-9/11 wars have cost in the order of $5.9 trillion—that’s more than $18,000 for every single person in the United States—and for what? Some 6,950 American soldiers have been killed and perhaps 970,000 wounded physically or mentally, with roughly half a million non-Americans killed overseas, all in the service of … radically destabilizing an entire region. To be sure, two rickety sort-of democracies have now replaced dictatorships, but aside from the gruesome price in blood, both are monumentally corrupt and it is not at all clear whether either will survive even in the medium term. A more purely senseless waste is hard to imagine.

The global military machine does, of course, provide great benefits to contractors who provide weapons, equipment, concessions services, and so on. A single M1 tank costs about $8.5 million, while a single new M27 rifle costs $1,300.

But again, in military terms, some of the most expensive projects don’t even work well—witness the F-35 fighter jet program, which will likely cost about $407 billion yet has been plagued with design problems and is already being surpassed by drones in terms of efficacy. Or witness the USS Gerald Ford, the most expensive aircraft carrier in history at $13 billion, yet whose fancy electromagnetic bomb lifts and catapult did not work properly at launch, requiring expensive retrofitting and testing.

The United States has not won a major war in more than 70 years. Squint a bit and the globe-spanning American military colossus looks less like some ruthless business venture, and more like the world’s most idiotic way to subsidize the hot tub and McMansion industry in northern Virginia. On the other hand, if we consider the large troop deployments in Germany, Korea, and Japan as part of the empire, it’s hard to make a case those countries are being victimized economically. On the contrary, all three are cutting-edge wealthy nations—which have not fought one another since 1945 under the U.S. security umbrella, a particularly noteworthy occurrence in the case of Germany and France. Insofar as those deployments are doing anything at all, the effects seem largely anodyne.

Taking these four elements together, we begin to see a reasonably clear picture of the economic mechanics of the American empire. Imperial power backstops cheap imports and the ability to run endless budget and trade deficits. Various countries absolutely have been brutally subjugated to protect the profits of American businesses over the years. Others have been trapped in debt peonage by U.S.-backed IMF austerity programs, while the grinding poverty of the Global South effectively protects America’s disproportionate share of world resources.

But here’s the main point: The downsides, even for Americans, are far more numerous. American prosperity—by which I mean the standard of living of typical Americans—in no way depends on this empire, and the broad American public is in no way the major beneficiary of the system it promulgates. Instead, it is run in the interests of a tiny class of business executives, investors, and military contractors. The American people are routinely victimized by the same ruthless bankers and pharmaceutical executives running riot in the Global South.

And this leads to an important political conclusion. It would be very possible to reform the world economic structure to allow poorer countries to build up their prosperity without truly harming the broad American public. Above all, the U.S. economy would have to be become drastically more efficient—which should be possible given technological developments. Carbon- and pollution-spewing coal and natural gas power plants could be replaced with renewables (which are now price-competitive with fossil fuels) and nuclear power. Gas-guzzling SUVs could be replaced with smaller electric cars. Heating and cooling for buildings could be made drastically more efficient with electric heat pumps and improved insulation. And all without sacrificing growth—one model suggests a green U.S. economy could be 158 percent larger by 2050.

Recycling could also be drastically improved, sharply reducing the amount of new raw materials needed in the first place. Sweden, for instance, has made a tremendous effort to boost its recycling capacity—currently 93 percent of its glass, 47 percent of its plastic, and 82 percent of its paper. A few workers in certain key industries would take a hit, and a much smaller group of investors and executives would take a larger one.

To be sure, a new model of prosperity and trade would have to be created. Poor nations must leapfrog fossil fuels directly to clean energy—if India and Africa develop the way China has done, the world climate is hosed. Trade must be made fairer, with international institutions to prevent corporations corrupting poor countries, and to clamp down on tax havens. The transnational capitalist elite must again be held accountable to sovereign democratic communities.

But the American working and middle classes would not be devastated—indeed, they might well come out ahead on net. One might even say that workers around the world have a common interest.

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Ryan Cooper is a National Correspondent for The Week.

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