The New Pragmatism – a new look at political economy and foreign policy
- 1. Introduction
This paper outlines a new ‘game-changing’ policy paradigm for the 21st century, which integrates political economy and foreign policy, and which eschews the principles of the progressive movement as well as those of neo-conservatism/neo-liberalism, which have at various times dominated 20th century policy-making since World War 1.
This new ‘game changing’ policy paradigm is designed to replace these outmoded principles with what we refer to as the ‘New Pragmatism’, representing a form of ‘Economic Humanism’ (formulated in part from the works of economists such as List, von Mises and Roepke), which is designed to facilitate human freedom and prosperity without the excesses of either collectivism and Keynesianism, or purist laissez faire libertarianism, where both political economy and foreign policy are placed firmly within an integrated cultural and moral framework, and where ‘decentrism’ is preferred to ‘centrism’. Indeed, Roepke (1998, p. 91) perceptively outlined the principles which are at the core of the ‘New Pragmatism’ in the following way:
The market economy is not everything. It must find its place in a higher order of things which is not governed by supply and demand, free prices and competition. It must be firmly contained within an all-embracing order of society in which the imperfections and harshness of economic freedom are corrected by law and in which man is not denied conditions of life appropriate to his nature. Man can wholly fulfill his nature only by freely becoming part of a community and having a sense of solidarity with it. Otherwise he leads a miserable existence and he knows it.
The ‘New Pragmatism’ also recognises that political economy and foreign policy cannot properly exist in isolation from one another, and instead are complementary parts of the same equation; indeed, as Spengler (1991, p. 399) has said, “economics and politics are sides of the one livingly flowing current of being … they overlie, they support, they oppose one another”. The ‘New Pragmatism’ therefore comes from the perspective that it is important to approach these matters from a comprehensive world-view, and not just from a narrow, purely economic focus, as in the case of neoliberalism, with its exclusive emphasis on economic liberty (Roepke, 2009, p.177). Accordingly, it represents an integrated blend of 21st century ‘Fordist’ political economy (from Mead, 2005, pp. 44-49), coupled with a robust approach to foreign policy based on a new system of multi-lateral alliances between like-minded, aligned powers, and representing a 21st century updating, extension and development of FDR’s ‘Four Freedoms’ (as outlined in his famous speech to the 77th Congress bearing that title, of 6th January 1941).
In this paper, our modern version of FDR’s “Four Freedoms” is termed ‘The Four Tools of Freedom’, and we use them as the lynchpins of the ‘New Pragmatism’ to forge its unique integrated link between political economy and foreign policy for the 21st century. In summary, these ‘Four Tools of Freedom’ are:
- The freedom of speech and expression, and the freedom to worship God in your own way (including the freedom from the tyranny of ‘political correctness’ and ‘group think’);
- Genuine prosperity, through maximising value-added productive potential (ie., ‘production over consumption’) and emphasising ‘the real economy’ and enduring stability, rather than financial engineering, derivatives and endless ‘bubble cycles’;
- Real independence, facilitated and supported by decentralisation (echoing Roepke’s recognition of the importance of ‘decentrism’ referred to above – id., Chap V, p. 222 and ff.);
- The ‘Freedom from Fear’, attained through the integration of the first three freedoms with an approach to foreign policy based on a pragmatic, robust military alliance between member states akin to the NATO and ANZUS Treaties, but which is neither hampered by inadequate, misdirected, arrogant and self-contradictory ‘grand strategies’, nor compromised by political correctness and cultural/moral equivalence.
Indeed, it is because the ‘New Pragmatism’ has these ‘Four Tools of Freedom’ as its key policy drivers integrating political economy and foreign policy, that we have coined the phrase the ‘Quadrilateral Alliance Strategy’ as its descriptive subtext.
The impetus for the development of the ‘New Pragmatism’ comes from the recognition of the clear movement that is now emerging in the Western democracies, particularly in the ‘Anglo’ democracies (especially those in Australia and the USA) whereby the mainstream voter has become increasingly disenchanted with the ‘grand strategies’ for global governance advanced by the political and ruling elites. This disenchantment exists with the political and ruling elites of both political persuasions, regardless of whether they are ‘grand strategies’ driven on the one hand by economic neo-liberalism and foreign policy neo-conservatism, or on the other hand by Keynesian big-spending, stimulus-based economic policies and foreign policies rooted in the cultural and moral equivalence of the progressive movement.
A distinct ‘break point’ between the addiction to counter-productive, contradictory ‘grand strategies’ on the part of the political and ruling elites, and the desire on the part of the mainstream voter for a return to common sense pragmatism, a strong middle ground approach based on ‘sound’ rather than ‘grand’ strategies, and ‘economic humanism’ was reached in 2010 both in Australia and in the USA. Indeed, this ‘break point’ in large part represents the desire on the part of the mainstream voter to simply be ‘listened to’ by the political and ruling elites.
In the case of Australia, this ‘break point’ was the Federal Election of 21st August, which resulted in a ‘hung’ parliament for the first time since World War 2, with mainstream voters defecting from the major political parties in droves so that the balance of power is now held by a series of independent, non-aligned members of Parliament and the minority Greens Party. In case of the USA, the ‘break point’ was the mid-term elections of 2nd November, which resulted in a major electoral reversal for the Democrats and the resurgence of a Republican Party re-energised by the influence of ‘Tea Party’ independents within its ranks.
Accordingly, in articulating the ‘New Pragmatism’, this paper is aimed at those policy makers in both Australia and the USA who understand that this ‘break point’ has been reached between the mainstream voter and the political and ruling elites, with their addiction to ‘grand strategies’ (which also come with the inbuilt downside of ‘grand contradictions and counter-productiveness’), and who therefore are responsive to the mainstream voter’s desire for the development of well-articulated, pragmatic and ‘humane’ alternative, both in terms of political economy and foreign policy. It is predicated on an understanding of the shortcomings, from the perspective of the mainstream voter in Australia and the USA, of the past forty or more years of economic and foreign policy ‘grand strategies’, characterised by the elites’ unquestioned adherence to the neoliberal shibboleths of globalisation, outsourcing, untrammelled free-trade, deregulation, de-industralisation, privatisation, centralisation, explosive debt-growth (personal, corporate and sovereign), as well as non-integrative multi-culturalism, and cultural and moral equivalence, which together have weakened us from both foreign policy and political economy perspectives.
In so doing, the ‘New Pragmatism’ seeks to facilitate a new era of truly entrepreneurial capitalism based on actual production, rather than what we have termed (borrowing from Minsky, 2008, and Strange, 2009) the ‘Ponzi-Financialisation’ and ‘Casino Capitalism’ which has increasingly dominated the neoliberal Anglo-economies since the formal end, in 1971, of the gold standard and the initiation of the undisguised era of fiat money through the so-called ‘Nixon Shock’ (Paul, 2008, Chapter 6 & Paul, 2004). It does so by eliminating these neoliberal ‘evolutionary dead ends’, which have resulted in the domination of the Anglo-economies by financial bubbles, speculation, ‘gaming the system’, and financial engineering, and replacing them with a 21st Century version of a more traditional, fundamental and infinitely more sustainable approach to political economy based on ‘Economic Humanism’ and ‘Economic Developmentalism’, rooted firmly in an understanding that ‘free’ markets are in fact very fallible and anything but perfect. It integrates this ‘21st Century economic pragmatism’ with an equally pragmatic and robust approach to foreign policy in the context of a full military, diplomatic and trade alliance between the successful post-World War 2 democratic economies of the Asia-Pacific region (namely the USA, Australia, Canada, New Zealand, India, Japan, South Korea, Taiwan and Singapore).
In so doing the ‘New Pragmatism’ seeks to create a powerful military, resource-rich, manufacturing and trading bloc which can successfully resist the coming political economy and foreign policy threats to these Asia-Pacific democracies from China, Russia, Brazil and a potentially resurgent global Islamic Caliphate driven by either or all of Turkey, Iran, Indonesia or Pakistan.
- 2. The existing globalisation master-plan and its problems
Spengler (1991, pp. 399-400) points out that, even though politics and economics are two sides of the same coin, politics is undoubtedly the first and most important aspect of the two: “politics sacrifices men for an idea … but [economics] merely wastes them away”. Accordingly, we will commence our journey towards the ‘New Pragmatism’ by looking at the shortcomings of the addiction by the existing political and ruling elites with political ‘grand strategies’ – particularly the ‘globalisation master-plan’ which is one of the central causes of the ‘break point’ referred to above between these elites and the mainstream voter.
Hirst et al., observe that globalisation has become such a fashionable concept that its “image has mesmerised analysts and captured political imaginations” to the extent that it is now widely asserted that we “live in an era in which the greater part of social life is determined by global processes, in which national cultures, national economics, national borders and national territories are dissolving” (2009, p. 2). It is against this background of the almost breathless and unquestioning fascination with the ‘grandiose project’ of globalisation and its supposed inevitability that the modern political and ruling elites develop and play out their ‘grand strategies’. Few of these elites stop to consider that, as Hirst et al., (id, p. 3) note, the reality when one looks closely at the figures is that the present globalised international system is not at all unprecedented. In fact the current international system has “only recently become as open and as integrated as the regime that prevailed from 1870 to 1914” (ibid.). And yet, during the 1990s, when neo-liberal capitalism appeared to be sweeping triumphantly across the globe, it became fashionable among the elites (as it still is) to proclaim that the era of the nation-state was over and that national-level governance was ineffective in the face of the ‘grand strategy’ of globalisation and one-world government. Indeed, inward-looking nationalism and cultural fundamentalism came to be regarded by the elites, bluntly, as being “the politics of losers” (Hirst et al., p. 231).
But what are the consequences for the mainstream voter if these elites are wrong, perhaps because they are out of touch with underlying realities, and this nationalism and cultural fundamentalism are not “the politics of losers”, but the politics of “formidable opponents” ? What if the elites are so misguided in their ‘grand strategies’ that they are reaching the wrong conclusions and leading us all down the wrong path by laying the West open to a major international political and economic crisis, or indeed, to earth-shaking tremors and potentially catastrophic cataclysms, in the near future?
As we will see, a central theme of the ‘New Pragmatism’ is that these views of the elites that nation states, nationalism and cultural fundamentalism represent the “politics of losers”, and that ‘grand strategies’ based on the march of globalisation towards a system of global governance where untrammeled free-market forces reign supreme, are in fact dangerously and profoundly misguided. Further, as we will demonstrate, these dangerous and misguided late 20th Century neoconservative and neoliberal views fly in the face of modern Western history and its demonstrable success over the past several hundred years. For as Scott (2002, p.64-65) observes, “European economic [and political] supremacy was forged not by actors who followed a [laissez faire] ‘Washington consensus’ model but by strong states”, with the nation-state being a European innovation that replaced feudalism and, through establishing the rule of law, then formed the framework for effective markets and state-sponsored systems that deliberately fostered technological innovation and economic development – all of which thrived within a political environment of “flexible alliances … [which maintained] a balance of power [in which] military and economic rivalries prompted states to promote development”. Scott goes on to note that “most of Europe’s leading powers did not rely on private initiative alone but adopted mercantilism to promote their development” with a strategy that used “state power to create a trading system that would raise national income”, as did the export-promotion schemes adopted by the successful post-World War 2 ‘Asian Tiger’ economies of Japan, South Korea, Singapore and Taiwan – where all such strategies would today be decried by the elites “as violations of global trade rules” (id., pp. 66-67).
The ‘New Pragmatism’ recognises the importance of nation states, nationalism and cultural fundamentalism. It recognises that it is necessary to consciously decide what sort of state, economy and culture that we want to create, rather than merely leaving such important matters to the vagaries of the much vaunted ‘invisible hand’, lest we be displeased with the outcome when it manifests itself, by which time it may very well be too late to effectively correct it. And it reflects the reality that, rather than the ‘grand strategies’ of the elites, the world actually “needs a more pragmatic, country-by-country approach, with room for [economic humanism and economic developmentalism, so as to foster] prosperity and safety” (Scott (id., p. 70).
In so doing, the ‘New Pragmatism’ also recognises that its central themes of ‘economic humanism’ and ‘economic developmentalism’ run counter to what Gatto (2010, p. 15) describes as the “most fashionable thinking of political economists”, whose ‘grand strategies’ do not remotely speak to the needs of the mainstream voter for “meaningful work, affordable housing, fulfilling education, adequate medical care, a clean environment, honest and accountable government, social and cultural renewal, or simple justice”.
Instead, the ‘New Pragmatism’ represents a paradigm shift away from the ‘grand strategies’ of the elites, and enables “meaning to be genuinely found” in a system where “real communities are built” (Gatto, ibid.).
- 3. The “Centres of Gravity” that don’t hold
It is common in military circles to talk in terms of ‘Centres of Gravity’, a concept which was coined by the Prussian military theorist and soldier, Carl von Clausewitz, and which has been the subject of a number of definitions, the most appropriate of which, for the purposes of this paper and the ‘New Pragmatism’, is the definition used by the US Department of Defense, as meaning “the source of power that provides moral or physical strength, freedom of action, or will to act” (Strange & Iron, 2003). In further expounding on the relevance of the concept of ‘Centres of Gravity’, Echevarria (2002) notes that von Clausewitz intended the Centre of Gravity to function much as its counterpart in the mechanical sciences does, that is, as a focal point, so that it therefore functions as the element within a structure that has the necessary force to hold that structure together.
Similarly, in the context of the ‘New Pragmatism’, from both the perspectives of foreign policy and political economy, von Clausewitz’s concept of ‘Centres of Gravity’ has great relevance if applied “judiciously” (as Echevarria, id., p. 21, points out), because, as in the case of purely military strategy, the selection of the right ‘Centres of Gravity’ gives (paraphrasing the definitions set out above) great moral and physical strength and power, as well as freedom to act, while providing the necessary force to hold the system together – in short, the right ‘Centre of Gravity’ will provide the right focal point.
As Melton (2009, p. 4 & pp. 11-18) has noted in his analysis of the problems resulting from the adoption in the 1980s by the US military of ‘Clausewitzian’ methodologies, to gauge the right ‘Centres of Gravity’ correctly, one must have a keenly trained eye on policy, because identifying the right policy is the foundation and a key premise of von Clausewitz’s concept, properly and validly applied. In confirming the validity of Melton’s conclusion here, we note that von Clausewitz himself repeatedly emphasised the intimate connection between war and policy: “war is an instrument of policy …war is only part of political intercourse, therefore by no means an independent thing itself … war is a continuation of political intercourse with a mixture of other means … it cannot follow its own laws, but must be looked upon as part of another whole – and this whole is policy” (von Clausewitz, Wildside Press edition, 2009, pp. 420-424). Most importantly, he noted that: “if the policy is right – that is, successful – any intentional effect it has on the conduct of the war can only be to the good. If it has the opposite effect the policy itself is wrong” (von Clausewitz, Princeton Paperbacks edition, 1989, p. 608). And finally, Sumida, in his excellent “decoding” of the “code” underlying von Clausewitz’s principles, emphasises that for von Clausewitz, “in the absence of experience, the most effective means of [arriving at the right policy] is the intelligent study of the past (2009, p. 193), thus confirming that any determination of a ‘Centre of Gravity’ which is not firmly grounded in history, as well as policy, will be wrong (which, as we will see later in our analysis, is one of the major failings of the neoconservative and neoliberal ‘Centres of Gravity’, and one of the main reasons why they don’t ‘hold’).
In other words, before there can be a ‘Centre of Gravity’, the sound policy foundation and principles which it is to be based on must be clearly determined, along with the relevant historical precedents and lessons. And once all this is done, the ‘Centres of Gravity’ will be right, and they will ‘hold’, because they are based on the right policy and on the relevant historical precedents and lessons, and will accordingly provide enduring strength, power, freedom, focus and structural integrity; conversely, the wrong ones will not, because they are based on the wrong policy, and will therefore lead to weakness, loss of freedom, loss of focus, and decay.
Or put more simply, the policies must be right and wise, and the historical basis must be sound, if the ‘Centres of Gravity’ are to hold.
Accordingly, in the following analysis, we will demonstrate the ways in which the ‘Centres of Gravity’ of the elites’ globalisation master plan are both wrong and misguided, in terms of foreign policy and political economy. As a result, they will ‘not hold’, and so are fundamentally weakening the Western political and economic system, which is one of the key reasons that the ‘break point’ has been reached between the elites and the mainstream voter in both Australia and the US in recent times. This analysis will then enable us to enunciate which ‘Centres of Gravity’ will ‘hold’, and which should therefore form the basis of the ‘New Pragmatism’ and thus lead us to a strong and prosperous future using the ‘Four Tools of Freedom’.
- i. Brzezinski meets Clausewitz
A. Foreign Policy Reality Check:
An excellent example of this use by the elites of wrong ‘Centres of Gravity’ in the foreign policy context can be seen by applying a ‘Clausewitzian reality check’ to the ‘grand strategy’ of Zbigniew Brzezinski and his associates, which is at the heart of much of the present thinking of the elites (particularly in the US).
Formerly President Carter’s National Security Advisor and an architect of the US policy of embroiling the former Soviet Union in an “unwinnable” war in Afghanistan, Brzezinski (1997) focuses on Central Asia as being the centrepiece on his “Grand Chessboard” in the “struggle for global primacy” (p. 31), while effectively downplaying the relevance of India, China and the Asia-Pacific regions (but at the same time contradicting himself by noting in passing that China and Japan may “likely outstrip both North America and Europe in total GNP … becoming the world’s centre of economic gravity”, p. 153). In focusing so much of his strategic attention on Central Asia, effectively what is one of the most inaccessible corners of the globe, his ‘grand strategy’ is riddled with internal contradictions and largely ignores what are now the newly emerging geopolitical pillars of the 21st century (viz., India, China and the Asia-Pacific).
Moreover, like so many of the elites, who find nationalism an inconvenient barrier to their ‘one-world government’ agendas, Brzezinski wrongly assumes that nationalism in Europe and elsewhere is now part of the past, and that the US should “prod” Europe towards further denationalisation and integration (id., p. 196). However, this assumption is at odds with the current reality developing at grassroots level in Europe following the onset of the global financial crisis in 2008. For as Brzezinski himself bemoans (ibid.), there is instead a distinct possibility of renewed nationalistic tendencies taking hold in Europe, as was the case in the 1930s, in the form of a developing backlash by the mainstream voter against global governance, deindustrialisation and Islamic immigration. Indeed, he is wrong in assuming that the age of nationalism is over (id., p. 57) and that a multicultural Europe can form a “democratic bridgehead” to underpin the push of his ‘grand strategy’ into the former Soviet Central Asia space (id., Chapter 3). And he is similarly misguided in his view that the dangers from Islamic fundamentalism and radicalisation can be discounted, controlled and even used to US advantage, so that a resurgent Russia can be either prevented, contained, or at the very least “Europeanised” (id., pp. 52-54).
Accordingly, using the ‘Clausewitzian’ principles outlined in Section 3 to serve as a ‘reality check’ for Brzezinski’s ‘grand strategy’, we can immediately see its flaws very clearly.
Central Asia does not offer a source of power that can provide moral or physical strength or freedom of action, either to the US or to any other power attempting to use it as its ‘Centre of Gravity’, nor does Central Asia provide the force that holds the structure together – it does not hold the world together, because as the historical record over many hundred years shows, it cannot even hold itself together. Thus, his ‘grand strategy’ is based on the wrong ‘Centre of Gravity’ (see for example, Jones, 2010, in his aptly titled work “In the Graveyard of Empires – America’s War in Afghanistan”) and fails every aspect of the ‘Clausewitzian reality check’, and so is of dubious value if we are to promulgate, as we should, the enduring strength, power, freedom, focus and structural integrity of Western culture and civilisation.
Furthermore, Brzezinski shows a lofty, elitist disdain for nationalism, with his preference instead being for the “pluralism” of multiculturalism, open borders, immigration and globalisation, with their “utopian aspiration to worldwide openness and cooperation … [despite] the understandable fear that domestic jobs will be transferred abroad while America is de-industrialised” (Brzezinski, 2004, pp. 143–144). In this too, he arguably fails the ‘Clausewitzian reality check’, because his position is again based on the wrong policy – a policy that almost by definition will lead to the ultimate weakening and decay of Western culture, values and power.
The application of the ‘Clausewitzian reality check’ to such elitist ‘grand strategies’ in this way helps us understand more clearly why the break point is now being reached between the elites and the mainstream voter, and why a ‘game-changer’ such as the ‘New Pragmatism’ is vital. What common sense mainstream voter would consciously vote in favor of a strategy, grand or otherwise, which is based on the wrong ‘Centre of Gravity’ and the wrong policy, which will lead to the weakening and decay of his culture and civilisation?
- ii. Neoconservatism
The debunking of Brzezinski’s flawed ‘grand strategy’, by using the ‘Clausewitzian reality check’ approach, leads us next into an analysis of the similarly flawed foreign policies of the neoconservatives, which have, as noted above, swept the world towards the end of the 20th century.
This analysis of the flaws in the neoconservative’s approach follows naturally from the previous section, because Brzezinski has been an important forerunner of the neoconservatives, evidenced particularly by their sharing of his ideological commitment to aspirations of ‘global governance’, ‘grand strategies’ and his disdain for nationalism and cultural fundamentalism. In particular, the central tenets of neoconservatism are very ‘Brzezinski-esque’ in that “they hope – they plan – to establish a new world order to rival Rome … [to] be established not with the consent of the governed but through force” (Norton, 2004, p. 179), based around the ‘grand strategy’ of exporting American democracy to the world, and indeed, initially to Central Asia (Stelzer, 2004, p.3).
As Stelzer (id., p. 12) notes, Presidents John Quincy Adams, Theodore Roosevelt, and Woodrow Wilson are among the “progenitors of neocon foreign policy”, as is the academic Leo Strauss, and his followers in both academia and popular writing who have developed “the neoconservative persuasion” such as Irving Kristol, Joshua Muravchik and Norman Podhoretz, and the founders of the Project for the New American Century (‘PNAC’), including Bill Kristol, Dick Cheney, Donald Rumsfeld, Paul Wolfowitz and Elliott Abrams (id., pp. 4-5). Indeed, through this route, the neoconservatives came to “espouse a world view that is unapologetically imperialist” (Joshua Micah Marshall in the The New Yorker, cited in Stelzer, id., p. 5), with the ‘grand strategy’ enunciated by PNAC, and declared by President G.W. Bush, as being the “utopian crusade … [to] rid the world of evil-doers … [so that] the United States [is] in Iraq and Afghanistan in pursuit not only of terrorists but of a new world order, conceived in accordance with abstract principles of right and rights” (Norton, 2004, p. 176).
What is interesting for the purposes of our present ‘Clausewitzian reality check’ analysis of neoconservatism, is the way in which this late 20th century neoconservative movement in the United States represents a dramatic break from the “long and honorable history” of the traditional American conservatism which preceded it, with its belief that with wealth and power came responsibility, its resistance to change, its distrust of abstract principles, grand theories, utopian projects, and its strong overriding belief in the importance of small government and fiscal responsibility (Norton, id., p. 162). All this changed as the U.S. neoconservative elites of the late 20th century embraced big government, deficit financing and expansion of executive power, all in pursuit of a vision of American power which, in the words of Professor Corey Robin (quoted in Stelzer, 2004) “is recklessly utopian” in its “grand strategy” to “spread democratic values as part of its program to create a more stable world order” (Stelzer, id., pp. 8 & 11).
When one applies our ‘Clausewitzian reality check’ to these neoconservative foreign policies, one sees that they too, like Brzezinski’s ‘grand strategy’, fail the test. The clearest enunciation of why they fail is found in the ancient imperative of “know thyself” carved in Delphi, which is “carried in the heart” of our Western DNA, and “which came with philosophy from the old world to the new” (Norton, 2004, p. 3): simply put, the imperialist tendencies of the U.S. neoconservative movement run contrary to every aspect of traditional American conservatism and its republican underpinnings, and in so doing, fail the “know thyself” test and therefore also fail our ‘Clausewitzian reality check’ because they represent the wrong ‘Centre of Gravity’. Indeed, confirmation that the imperialism of the U.S. neoconservative movement is based on the wrong ‘Centre of Gravity’ also comes from the well known Yale historian, Niall Ferguson, who notes that the notion of an “American imperium” is “rejected by an America unwilling to make … [the required] profound changes in its economic structure, its social makeup and its political culture … and [instead] seeks exit strategies rather than more permanent occupations along the lines of the former British imperialists, who had the grit to stay the civilising course” (Stelzer, 2004, p.18).
And if this failure to meet our ‘Clausewitzian reality check’ wasn’t enough, there is the additional and important fact that the neoconservatives “utopian crusade” to export democracy to the Islamic states of Central Asia clearly fails because it ignores the underlying reality that “a democratic regime requires a democratic culture”, which is not readily part of the Islamic socio-political DNA (James Wilson, quoted in Stelzer, id., p. 11). As such, this neoconservative “utopian crusade” also can be regarded as having the wrong ‘Centre of Gravity’, and therefore is ill-conceived and destined for failure.
Furthermore, one final, and really quite damning feature of the neoconservative movement as a whole, when considered in the light of our ‘Clausewitzian reality check’, is the fact that, because of its strong roots in Straussian philosophical principles, it represents perhaps one of the most extreme ‘break points’ between the elites and the mainstream voter in the way in which it openly holds that “the elite must, in a word, lie to the masses; the elite must manipulate them – arguably for their own good … [and that] these lies are necessary to keep the ignorant masses in line” (Zuckert & Zuckert, 2008, p. 7).
In this regard, one could hardly imagine a movement more out of touch with the current mood of the mainstream voter, especially given the recent 2010 electoral results mentioned above in Australia and the United States.
- B. Political Economy Reality Check:
An even more stark result comes when we apply our ‘Clausewitzian reality check’ to the neoliberal political economic agenda, which has dominated the world stage over the past several decades in parallel with neoconservative foreign policy.
Paraphrasing what we have already seen above in this context, the key driver of the ‘Clausewitzian reality check’ is finding the right ‘Centre of Gravity’, which provides us with strength, power and freedom, and which, in so doing, holds the structure together. As such, Clausewitz requires us, if we are to be successful at this, to think long term, have a sound knowledge of the relevant history, and to be amenable to some degree of central direction which is focused on achieving this long term success – what some writers have termed “the Angel in the Whirlwind” (Mead, 2005, p. 14, drawing on Addison’s 1705 poem entitled “The Campaign” which described the Duke of Marlborough’s epic victory at the Battle of Blenheim).
As we shall now see, and which is particularly evident in the ongoing wreckage of the world economy after the onset of the 2008 global financial crisis (‘GFC’), none of these Clausewitzian principles are met by the neoliberal economic agenda.
This neoliberal economic agenda which took hold towards the end of the 20th century, particularly in the Anglo-economies, has been described as ‘Millennial Capitalism’ and is increasingly seen by the mainstream voter as the ‘economic break point’ that marks “the end of a system that produced peace, justice, mass prosperity, and social security, and the rise of a grotesque new system of inequality, instability, and bare knuckled competition in a hideous, neoliberal dog-eat-dog world” (Mead, id., p. 71). Accordingly, we can see that it has not been based on the right ‘centres of gravity’, and therefore why it has increasingly become a central issue in the ‘break point’ between the elites and the mainstream voter.
Most importantly, the central features of this ‘Millennial Capitalism’, which are the critical reasons it fails to pass our ‘Clausewitzian reality check’ are (borrowing from Fallows, 1993, pp. 64-73), its focus on:
- “automatic” growth versus deliberate development;
- consumption over production;
- production over result;
- individuals over the nation;
- the neoliberal fallacy that “everyone is a winner” in one form or another from globalisation and deregulation; and
- phony “trade morality” over real economic power.
The three most negative ramifications of these critical ‘Clausewitzian failings’ of the neoliberal economic agenda which make it an ‘economic Centre of Gravity that doesn’t hold’, from the perspective of a desire to maintain and bolster Western economic power, can be encapsulated under the following headings:
- i. Ponzi-financialisation
We use the term ‘ponzi-financialisation’, borrowed from the concepts enunciated by Minsky (2008), to describe what is perhaps the single most insidious downside of ‘Millennial Capitalism’, being the way in which the modern economy has become dominated by fiat money creation, excessive debt and leverage, accruals accounting, balance sheet manipulation, capitalisation of interest, the increasing use of derivatives, with speculation (both directly in assets themselves and indirectly through the use of derivatives) as a major profit generator.
This ‘ponzi-financialisation’ has now reached the point where the ‘speculative financial economy’ is now many times larger than the ‘traditional Main Street economy’ (otherwise referred to as the ‘real economy’).
Hartcher (2006) has highlighted the extent of this ‘ponzi-financialisation’ of the ‘bubble economy’ period of the last decade in pointing out that “the historical benchmark [is that] the total value of all stocks has averaged around half the value of the economy’s output … equivalent to 55 per cent of GDP … [but] in 1999, it broke through the 170 per cent level” (id., pp. 4-5). More damning, he notes that “by the end of the bull market, there were more mutual funds offering to buy into listed companies than there were listed companies themselves” (id., p. 6) and that the US stock market had departed so far from the historical norms that its valuations had “distended to represent a sum equal to half the value of the economy of the entire world” (id., p.9).
In addition, according to the Bank of International Settlements’ BIS Quarterly Review, December 2008, the size of the world stock market was estimated at about $36.6 trillion USD, whereas the total world derivatives market was estimated at about $791 trillion face or nominal value, or 11 times the size of the entire world economy. Indeed, as Ferguson (2008, pp. 4-5) notes, “Planet Finance is beginning to dwarf Planet Earth … [and] seems to spin faster too”, because in 1947 the total added by the financial sector to U.S. GDP was 2.3 per cent, but by 2005 its contribution had risen to 7.7 per cent of GDP, so that, in other words “approximately $1 of every $13 paid to employees in the United States now goes to people working in finance”.
This is a problem from the perspective of our ‘Clausewitzian reality check’ because the era of ‘Millennial Capitalism’ has therefore seen the business of the ‘real economy’ (viz., the manufacture of real things) being devalued in the eyes of the elites in comparison to the much more ‘racy’, but much more unstable and ‘bubble orientated’, ‘speculative financial economy’ in the ever increasing trend towards ‘ponzi-financialisation’ of the economy and the clear pursuit of the wrong economic ‘Centre of Gravity’.
In this connection, Minsky (id., p. 219) notes that:
The evolution from financial robustness to financial fragility did not take place in a vacuum. The sources of the change can be traced to profit opportunities open to financial innovators within a given set of institutions and rules; a drive to innovate financing practices by profit-seeking households, businesses and bankers; and legislative and administrative interventions by governments and central bankers.
And further (id., pp. 237-238):
Once the shift toward increased external and speculative financing develops, market reactions validate the decision to engage in such financing … [with an] increase [in] the apparent debt-carrying capacity of profit making firms … which breeds a disregard of the possibility of failure … [which] leads to the development of a euphoric economy in which increasing short-term financing of long positions becomes a normal way of life … [so that the] functioning of an initially robust financial structure will lead to a structure that becomes more fragile as time elapses.
Indeed, this ‘ponzi-financialisation’ of the economy has created a “new financial architecture” where (Minsky, id., pp. xxxi-xxxii):
- form dominates over substance,
- financial engineering dominates over real engineering,
- unregulated or poorly regulated markets allow “balance sheet adventuring … to avoid scrutiny”,
- relationship banking was replaced by an “originate and distribute model” in which securitization dominates, resulting in the packaging of ever riskier tranches which are increasingly disconnected from the actual underlying risks,
- financial models don’t account for systemic risk,
- the incentives are wrongly placed on quantity and throughput of the financial engineering structures originated, rather than on the credit quality of the counterparties and the “survivability” of the structures.
And since it is the financial elites in this era of ‘Millennial Capitalism’ who benefit most from this “new financial architecture”, which has created “the yawning chasm between the Haves, the Have-nots – and the Have-yachts”, while at the same time turning “China into America’s banker – the Communist creditor to the capitalist debtor” (Ferguson, 2008, p.4), is it any wonder that this is one of the key ‘break points’ between the elites and the mainstream voter?
- ii. Deindustrialisation
The second unfortunate downside of ‘Millennial Capitalism’, and a key element of the ‘break point’ between the elites and the mainstream voter, is the way in which its neoliberal, laissez faire, free trade agenda, has led, steadily and inexorably, to the deindustrialisation of each industrialised nation that has practiced it, especially so in the case of the United States and Australia.
Batra (1996) has produced an excellent critique of the idea of free trade and notes how it has acquired mythical status which places it above question: “to be for laissez-faire is to be for progress, prosperity, and peace; to be against it is to invite the wrath of economists, Wall Street, political pundits, and much of the press” (id., p.1). And indeed, the elites continue to sing the praises of this neoliberal free trade agenda, while making light of “its costs in terms of layoffs, lost wages, and environmental destruction … [while it] has wrecked U.S. industry and shattered the American dream” (id., p. 3).
The entire economic landscape of both the U.S. and Australia has thus been transformed by neoliberal free trade-induced deindustrialisation, from strong and resilient integrated manufacturing economies, to import-addicted service economies. In both countries, since the 1970s, “cheap imports produced by foreign workers, sometimes laboring on pennies per day, have destroyed and even exterminated industry after industry”, while the elites “stood idly by” – when “foreign labor is so cheap, no matter how superior [our] technology is, [our] industries just can’t compete with foreign products (id., p.4).
Indeed, as Batra notes, free trade has done to us, “what Hitler and Imperial Japan could not do during the war” (ibid.).
Why this deindustrialisation fails our ‘Clausewitzian reality check’ is shown by Batra (id., p.3), when he notes that “the experience of most countries shows that prosperity lies in the expansion of manufacturing rather than [primary production, whether agriculture or mining] and services … because manufacturing has much higher worker productivity than other sectors, so that its salaries tend to be 150 to 200 per cent of those in other areas. Indeed, it is therefore clear that when free trade promotes manufacturing, it will raise overall productivity as well as the general standard of living, but when it promotes services at the expense of manufacturing, “productivity growth as well as real earnings decline” (ibid.). As such, “manufacturing, not trade, is the main source of prosperity” (ibid.). And most interestingly of all, these observations by Batra (1996) are not new: they are merely modern iterations of all the original and highly perceptive arguments made by List in his seminal 1856 work, which is at the heart of the logic behind the ‘New Pragmatism’.
One of the great myths promoted by the neoliberal proponents of ‘Millennial Capitalism’ and its free trade agenda is that free trade makes the nation as a whole better off economically, even though it may harm some workers who either lose their jobs or suffer reduced wages as part of the deindustrialisation process. Batra (id., pp. 157-158) demolishes this myth by noting that, since free trade and deindustrialisation have reduced the real wages of the average employee and self employed (who constitute over 80 per cent of the population), any analysis that concentrates only on national aggregates such as GNP and ignores that actual plight of over 80 per cent of the population, is simply unconscionable and a cardinal point in our argument against ‘Millennial Capitalism’. And further in the unconscionability stakes, Batra (ibid.) also notes that, because senior executive compensation has continued to rise by over 200 per cent during this period while real wages of the workers have been stagnating or falling, it is clear that free trade and deindustrialisation also promotes inequality between the rich and the poor within our own countries. Moreover, Batra (id., pp. 162-163) also shows that all the studies promoting the economic benefits of free trade ignore the costs of the wage losses (and the associated skills and competency losses) resulting from the associated wage stagnation, reductions and deindustrialisation, which he notes have conservatively been estimated, as far back in the process as 1990, as being as much as $350 billion annually (and clearly would be far higher today).
Accordingly, with the costs and dislocation of free trade and deindustrialisation running so high, it is unsurprising that the mainstream voter in the U.S. and Australia is becoming increasingly unconvinced by the supposed benevolence of these policies, and that this issue is rapidly becoming one of the key ‘break points’ between the mainstream voter and the elites. Indeed, as Batra perceptively observes, “years of official indoctrination have not been able to budge [the mainstream voter] from the commonsense view that if a policy shifts high-wage manufacturing jobs abroad or workers into low wage services at home, the country cannot but lose. However what is straightforward to most is considered naïve by economists and the elites” (id., p. 163).
And this, simply stated, is why laissez faire free trade policies and deindustrialisation fail our ‘Clausewitzian reality check’ and why the ‘break point’ has been reached regarding it.
iii. The fallacy of consumerism
‘Millennial Capitalism’ assumes that “the ultimate measure of a society is its level of consumption” (Fallows, 1993, p.66), hence the phrase ‘the consumer economy’, which is a concept which has dominated the elites’ economic thinking and policy agendas in the Anglo-economies since the 1970s. As Fallows (ibid.) notes, the neoliberal school of economic policy holds that “it doesn’t matter why [or what] competitors are willing to sell for less … they may really be more efficient [or] they may be determined to dump their goods for reasons of their own”, because at the end of the day, consumption is the goal and the consumer benefits because he has both the goods and the money he has saved from buying them more cheaply.
However, this glib explanation disguises the fallacy of consumerism: for, as List (1856. p. 256) persuasively argues, “the wealth of nations does not consist in material goods or their value of exchange, but in the ability continuously to produce such goods”. In other words, List is making the vitally important common sense point that the neoliberal elites miss entirely, namely that “a society’s well-being and its overall wealth are determined not by what the society can buy but by what it can make” (Fallows, 1993, p. 66).
This is why the consumerism that is at the heart of ‘Millennial Capitalism’ fails our ‘Clausewitzian reality check’: it in fact leads to the long-term decline and decay of our economic power, because the real point is not ‘how much I can consume today’, but ‘what am I going to be able to accomplish in the future’.
Accordingly, the fallacy of consumerism is that it leads back to more deindustrialisation and the resultant weakening of our strategic and material well-being. In this regard, List (1856) was not concerned with the morality or immorality of consumption, but was merely interested in the strategic nationalist aspects which the neoliberal elites discount so greatly: ie., he focused on the fact that, in strategic terms, nations end up being strong or weak based on their ability to make advanced things for themselves, not on the strength of their ability to consume goods. He noted that “emphasising consumption would eventually be self-defeating …[because] it would bias the system away from [real] wealth creation – and ultimately make it impossible to consume as much” (Fallows, 1993, p. 67).
Indeed, List’s perceptiveness here can be seen by looking at the present day, continuously deindustrialising economies of Australia and the U.S., and the way in which, as we have seen from the previous section, this process of consumer-driven deindustrialisation has led to a steady continuous decline in real wages and purchasing power since the early 1970s. When this process meets the downside of the ‘ponzi-financialisation’ of those economies, as happened with the onset of the GFC in 2008, List’s prediction becomes reality: consumerism and the consumer economy in Australia and the U.S. has literally ‘hit the wall’ because of falling incomes and unsustainable debt levels, and indeed, may never recover its pre-GFC levels.
Accordingly, the reality is that the common sense approach of List, which echoes the common sense attitudes of the mainstream voter, can now be emphasised in stark contrast to the neoliberal ideology of the ‘Millennial Capitalists’: while you may indeed be better off immediately as a consumer by buying cheaper foreign goods, over the long term, your society will be stronger and more affluent if it seeks to make as many advanced goods as possible, rather than merely importing and consuming them. For as Fallows (1993, p. 67) notes:
If you can make steel rather than just being able to buy it, you’ll be better able to make machine tools. If you’re able to make machine tools, you’ll be better able to make engines, robots, airplanes. If you’re able to make engines and robots and airplanes, your children and grandchildren will be more likely to make advanced products and earn high incomes in the decades ahead.
And this represents the simple choice that we are facing in the modern 21st century Australian and U.S. economies, on which ‘Millennial Capitalism’ and its ‘ponzi-financialisation’, deindustrialisation and consumerism have wrought such great damage. And it is at this choice that the ‘New Pragmatism’ is squarely aimed.
Next week: The New Pragmatism, Part Two – The Chinese approach, Japan and the Asian tigers, and the imperative to reverse deindustrialisation in the Anglo economies.
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Steve Barber, based on the Sunshine Coast, has more than 25 years’ experience internationally in law, finance, operational risk management and counterterrorism issues. Until recently he was an active member of the Liberal National Party’s Policy Standing Committee and the Chairman of the LNP’s Federal Trade & Resources Policy Committee. The views expressed here are his own. Steve can be reached by email at email@example.com