People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 37

September 11, 2011

Imperialism and Its Follies


Prabhat Patnaik


SOON after the twin towers of the World Trade Centre in Manhattan had come down almost exactly ten years ago, a meeting of top US officials was held, where Condoleeza Rice reportedly posed the question: how can we make use of this tragedy? The concern was neither with the tragedy itself, nor even with bringing its perpetrators to justice; it was with utilising the opportunity provided by it for furthering US “interests”. And such utilisation, it was mooted at that meeting, could best be done through an invasion of Iraq. Even though Saddam Husain’s hostility to the al-Qaeda was well-known, and even though common sense would suggest that if the US was serious about launching an offensive against al-Qaeda, then toppling Saddam Husain was the last thing it should be thinking of at that moment, it was precisely this project which was placed on top of the US agenda and implemented in due course.




Lies about Iraq possessing “weapons of mass destruction” were assiduously spread to prepare the ground for the invasion. At the Chilcot hearings, investigating the background to the invasion of Iraq, the former head of MI-5, Britain’s domestic intelligence agency, testified that both American and British intelligence services knew before the invasion that Saddam Husain posed no serious security threat (quoted in Chomsky’s “Was There an Alternative?”); and yet the invasion was carried out, and that too without any UN mandate of the sort that even allies like France were asking for.


The motive for this invasion was obvious: to capture Iraqi oil. Alan Greenspan, the former chairman of the Federal Reserve, not only says so explicitly in his autobiography, but even decries American official squeamishness about admitting this fact openly. Iraq has the third largest officially confirmed oil reserves in the world, at 143 billion barrels; unofficially, geological surveys and seismic data put Iraq’s oil reserves at 350 billion barrels, which is the largest in the world. The US wanted to capture these massive reserves. The reason is not only the obvious one, of meeting its huge domestic consumption; there is a more subtle and significant reason as well, which has to do with the strength of its currency.


Under the Bretton Woods system the US dollar was officially sanctified to be “as good as gold”, since its price in terms of gold was pegged at $35 per ounce. The dollar was the reserve currency and constituted the stable medium in terms of which much of the world’s wealth was held. Of course, it was not the only medium for holding wealth; there were other currencies as well in terms of which wealth was also held. But these other currencies (or currency-denominated assets) also constituted repositories of wealth only because their relative values in terms of the US dollar were fixed, and wealth-holders had confidence that they would remain so.


Even after the Bretton Woods system collapsed, and the world moved to a system of floating exchange rates, the US dollar continues to be the medium in terms of which much of the world’s wealth is still held. This, of course, is essential for world capitalism which cannot do without a stable medium of wealth-holding, but, for the dollar to fulfill this role, of being, in the perception of the world’s wealth-holders,“ as good as gold”, even though its value is not formally fixed in terms of gold, it must satisfy a crucial condition. The condition is that its price vis-a-vis the universe of commodities must not be expected to decline secularly (or, more accurately, it must not be expected to decline at a rate that more than offsets the carrying costs of commodities). Put differently, commodity prices in terms of dollars must not rise too fast, for, if that happened, then wealth-holders would rather hold commodities than dollars or dollar-denominated assets.


This in turn requires two conditions: first, money wages in the US must not rise too fast; second, dollar prices of critical inputs must not rise too fast. (These two conditions can be rolled into one: the dollar prices of commodities, including labour power, must not rise too fast). The reserve army of labour that exists in the US (and that has always existed, even before the current crisis) ensures that the dollar price of labour power in the US does not rise too fast. Likewise, the massive labour reserves existing in third world primary commodity-producing economies ensure that agricultural primary commodities, at any rate, do not witness too rapid increases in prices in a secular sense: they may witness sharp price fluctuations but secular increases are controlled by squeezing the third world’s absorption of such commodities (since money wages there are not indexed to price increases).


But that leaves commodities which are scarce natural resources, among which by far the most significant is oil. The role of the US dollar as a stable medium for holding wealth, which is of crucial importance both for the US (for it is what allows the US to run persistent current account deficits on its balance of payments), and also for the entire capitalist world (for it gives all the wealth-holders everywhere a reliable receptacle for holding their wealth), hinges therefore upon the dollar price of oil not rising too rapidly in a secular sense (though it may fluctuate). US control over the world’s oil supplies is a means of instilling confidence among the world’s wealth holders that the dollar will continue to be a stable medium for holding wealth, “as good as gold”, even though it is not officially exchangeable against gold at a fixed price. The necessity for the US to control the world’s oil supplies arises therefore not only because it needs the oil for its domestic consumption, but also for propping up the dollar which is essential both for its own economy (to be able to keep borrowing) and also for the world capitalist system as a whole (for which the dollar constitutes a stable medium for holding wealth).




The invasion of Iraq however turned out very differently for the US from what had been visualised. While the Saddam regime was toppled easily, the war dragged on against domestic resistance groups and the country got fragmented. As a result even the government that was installed, in order to get some credibility, had to act in ways different from what had been visualised at the time of invasion. An oil law that would have handed over Iraq’s oil reserves to foreign companies was defeated in parliament. Oil continued to be State property, though foreign oil companies were allowed to pump it for a fixed price per barrel. The companies themselves were chosen through a process of competitive bidding. And given the uncertainties arising from the conflict between the Kurds and the regime in Baghdad, and the low bids put forward by Chinese and Russian companies, the profit prospects on pumping Iraqi oil were not attractive enough for American oil companies, which either stayed away from the bidding or were shut out of it.


The US, in short, despite the enormous human suffering it inflicted upon the Iraqi population and upon its own youth enlisted into the invading force, and despite the enormous cost it had to bear for fighting the war (in excess of $ 3 trillion according to some estimates), did not achieve its original objective of getting control over Iraq’s oil reserves. True, with a client State controlling the oil reserves, which is not even a member of OPEC at present, the US can exert pressure to keep oil prices within bounds, so that the supremacy of the dollar is not challenged, and in that sense meet part of its original objective; but it is a moot point if this much alone could not have been ensured without the invasion. The war brought huge profits to corporate entities with close ties with US government leaders, like Haliburton in which Dick Cheney had an interest. But the grand imperialist project quite clearly came a cropper, even as the war contributed greatly towards undermining the stability of the order, both through domestic disaffection because of its direct and indirect (economic) effects, and also by reducing US imperialism’s capacity to intervene in Latin America at a crucial time.


What is remarkable about imperialist follies however is that they tend to repeat themselves.  We now have a repetition of the Iraq misadventure in Libya. Here too the original UN resolution was intended only to prevent massacres and human rights violations arising from the pounding of rebel positions by Gaddafi’s forces. But US imperialism and its allies saw in it a great opportunity to capture Libya’s oil reserves, the largest in Africa, the ninth largest in the world, and particularly attractive because the extraction costs are extremely low (as low as $ 1 per barrel). So, they went beyond the UN resolution and brought about, in violation of all canons of international law, a “regime change” which they justified predictably in the name of ushering in “democracy” (even while silently applauding Saudi Arabia’s crushing of the pro-democracy movement in Bahrain).


But, as in Iraq, their dream of installing a regime of their choice which will then rule “peacefully” to their satisfaction for years to come, even as they capture the country’s oil wealth, is going to be shattered. Chris Hedges, a well-known American journalist, has this to say about Libya: “I know enough of Libya, a country I covered for many years as the Middle East bureau chief for The New York Times, to assure you that the chaos and bloodletting have only begun… we should never have become the air force, trainers, suppliers, special forces and enablers of rival tribal factions, goons under the old regime and Islamists that are divided among themselves by deep animosities and a long history of violent conflict”.


Osama bin Laden had "repeatedly asserted that the only way to drive the US from the Muslim world and defeat its satraps was by drawing Americans into a series of small but expensive wars that would ultimately bankrupt them" (Eric Margolis quoted in Chomsky). For this purpose however no agency of Osama or his outfit was necessary; the imperialist quest for control over oil resources was quite enough. With the Libyan misadventure coming on top of Afghanistan and Iraq, from neither of which the US has managed to extricate itself as yet, imperialist follies are piling up.