The political economy of war

Published : Apr 11, 2003 00:00 IST

Turkish tankers at the Habur border-crossing with Iraq in this February file picture, to fill crude oil, in accordance with the U.N. food for oil programme. - AFP

Turkish tankers at the Habur border-crossing with Iraq in this February file picture, to fill crude oil, in accordance with the U.N. food for oil programme. - AFP

The prognosis for the aftermath of the war is for a huge realignment of global capital flows as the cost of reconstruction of Iraq would have to be borne by Europe, Japan or the oil-exporting Gulf countries, not the cash-strapped U.S.

ONCE the scourge of war passed, promised George Bush, Iraq would enjoy the "sustained commitment" of the United States in any effort to build a "united, stable and free country". Global audiences recalled from not far back that much the same had been promised the people of Afghanistan when the final war of destruction was launched against their country in October 2001. Few have chosen, in the months following the collapse of the Taliban regime in Afghanistan, to hold up this early U.S. commitment to the light. Even the recent spectacle of the hapless Afghan President Hamid Karzai making his way across world capitals did little to bring the issue into focus. Karzai was ignored for the most part, only managing, in rare instances, to win promises that were little more than derisory.

When Bush sent his budget proposals for the fiscal year 2004 (beginning October 1, 2003) to Congress, preliminary scrutiny revealed an appalling fact: nothing had been allocated as reconstruction aid for Afghanistan. Deeply embarrassed, congressional staff managed to scribble in a figure of $300 million before the budget was sent onwards for scrutiny by the Houses of Congress.

The problem is not merely one of a President with a notoriously brief attention span and an administration that is indifferent to the perceptions of the world. The problem rather is of a U.S. administration that is enslaved by an ideological agenda that impels it towards certain non-negotiable policy choices. Integral to this agenda are unending war overseas and huge tax breaks for the rich at home.

Despite being in lockstep behind Bush's war plans, Congress was not quite so credulous as to believe his shaky arithmetic. The questions posed were quite fundamental: how could Congress pass a budget that made no provision for the war that was the consuming passion of the administration? How could tax concessions be handed out when the war effort indicated that a sharp increase in taxes was necessary? Congress made a minor correction to the President's arithmetic, scaling back a proposed $726 billion tax concession over the next decade, by about $100 billion. The Bush zealots refused to yield ground and Congress remained deadlocked until the fourth day of the military campaign in Iraq. It was impossible to imagine a more surreal comment on the supposed consensus within the U.S. polity over the war.

A day after hostilities began, British Prime Minister Tony Blair met counterparts in the Council of Europe at a Brussels summit. He remained aloof from French President Jacques Chirac, the official description of their encounter being that they were "in each other's presence". Within the inner councils of the summit, France is believed to have told the U.K. that its advocacy of the cause of Iraqi reconstruction was presumptuous and insolent. As a country that was partly responsible for the problem, it was up to Britian to first publicly atone for defying the will of the international community and then put up the funds for the reconstruction effort.

Civility prevailed, and the European Union managed an agreed statement committing itself firmly to reconstructing Iraq. But this concession to civilised norms may well run up against U.S. recalcitrance. The U.S. Agency for International Development - a body deeply scarred by the sordid politics of the Cold War - has already been floating tenders for civil works in post-war Iraq. And in the first round of bids, it has made a deliberate decision to entertain applications solely from U.S. companies.

Clare Short, British Secretary of State for International Development, had swallowed her reservations about Blair's "reckless" rush to war and withdrawn a resignation threat in the belief that she could contribute to Iraq's reconstruction. She soon ran into the U.S. government's theological conviction that the rebuilding of Iraq's health care infrastructure should be entrusted to U.S. corporations and none other.

What reliable figures are available to guide the proposed reconstruction? Since 1996, Iraq has survived on the slender lifeline of the oil-for-food programme that was deliberately designed to fail. Denis Halliday, the Irish diplomat who resigned as coordinator for U.N. humanitarian activities in Iraq in 1999, has said that the programme just managed to prevent the rapid descent from disaster to catastrophe. And this was a matter of design.

Whatever potential the oil-for-food programme had to mitigate human suffering in Iraq was effectively sabotaged by the U.S. and the U.K., who worked jointly to hem it in with a host of arbitrary conditions. Despite seven years of the programme, Iraq's infrastructure remains in a parlous state. At current levels of oil prices, Iraq barely manages to earn $6 billion annually, of which only a fraction is made available for essential purchases. This means that restoring the power grid, the water supply system and the oil industry to a viable level would require enormous investments far beyond Iraq's oil revenues.

That a third or more of all children born in Iraq are underweight and malnourished is an illustrative statistic, which conveys the extent of the devastation inflicted on the infrastructure of a country that was once regarded as a model welfare state. Conservative estimates put the funding requirement for Iraqi reconstruction at $100 billion, of which $20 billion would be required for restoring the electricity grid and $6 billion for bringing the petroleum industry back to the performance level of a quarter century back.

U.S. ambitions of launching a self-financing "Marshall Plan" in Iraq after subjugating its people, are for this simple reason, rather extravagant. And there is little likelihood that the Bush plutocracy will manage to squeeze out even a fraction of this requirement from the seriously strapped budgetary resources of the U.S. In essence then, the costs of Iraqi reconstruction would have to be borne by capital-surplus Europe, Japan, or the oil exporting countries of the Gulf. Since these surpluses are currently deployed in financing the gargantuan current account deficit of the U.S. - running now at $1.5 billion a day - the prognosis for the aftermath of the war is for a huge realignment of global capital flows.

An alternative scenario is of course possible: that the U.S. will raise its budgetary spending and continue mopping up global capital surpluses, channelling a fraction of these through its banking institutions towards Iraqi reconstruction. But this would require the restoration of the credibility of U.S. government debt instruments, which have been badly shaken by the prolonged economic recession and plunging interest rates.

It is an arresting fact that the U.S. military budget for fiscal 2003 is pegged at $437 billion. This is roughly the same as the current account deficit that the U.S. runs. Put another way: the entire military budget of the U.S. is financed by borrowing from capital-surplus Europe, Japan, and the Gulf states. And this massive level of borrowing is sustained on the illusion of high yields on government debt and the bloated level of U.S. stock markets. If either - or both - of these indices were to falter, then the capital-surplus countries could well beat a retreat from the U.S. market, plunging the budget, the currency, and the economy of the sole superpower into dire crisis.

There have been two speculative runs on the U.S. dollar in the last quarter century. The first, which occurred in 1979, led directly to the massive increase in interest rates by the U.S. Federal Reserve, which in association with the Reagan-era budget deficits, engendered the Third World debt crisis. The second led to the stockmarket crash of 1987. The lessons were not learnt. The U.S. continued to run huge current account deficits all through the 1990s.

With the Reagan-era budget deficits slowly yielding to a period of balance and then a transient surplus, the current account deficit was reflected in the 1990s in a huge spurt in debt-financed consumer spending. That mountain of household debt today is a ticking time bomb, only waiting to explode when the soft interest rates that prevail now give way to a regime that more accurately reflects the economic fundamentals. And with Bush's fiscal policies driving up budget deficits once again to Reagan-era levels or more, that moment may well have come.

A wobbly currency is often the Achilles heel of imperialist powers, as a historical precedent vividly illustrates. In 1956, British, French and Israeli forces launched a military intervention to seize the Suez Canal and initiate the overthrow of Gamal Abdel Nasser's nationalist regime in Egypt. U.S. President Eisenhower, then working under the assumption that Egypt was a potential ally, compelled a humiliating withdrawal within weeks by merely threatening to block the emergency financial infusions that the U.K. needed to defend the value of the pound sterling. A reprise of that historical chastisement of imperialism is today not merely possible, but likely. And just as then an incipient imperialist power played the role of reversing the aggression of dying colonial powers, the repentant imperialist powers of France and Germany could today administer the long overdue punishment for U.S. imperialist over-reach.

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