Explaining the American Boom: The Roles of ‘Globalisation’ and US Global Power -- By Peter Gowan

So far the intense debates about whether the American boom of the 1990s signals the arrival of  a so-called 'New Economy'   have focused mainly upon certain domestic features of the American economy: the productivity record, the role of new technologies, the structure of the financial sector, the nature of the US labour market and so on.

The purpose of this article is not to argue that these domestic issues are unimportant, but  to suggest that other forces and changes have also been important  driving forces of the boom. These other factors are also rather new  -- they  have emerged during the last quarter of a century. They are to be located in the new relationships between the American economy (and US economic management) and the international political economy. And at bottom these changing relationships between the US and the international political economy should be understood as being driven more my political forces than by economic processes.

This article will suggest this set of explanatory relationships: it will not prove them, far less demonstrate them in quantitative terms. Its ambition is, therefore, to stimulate research in this area.

We will first examine the course of the boom and certain key economic relationships widely recognised to be  central features of  it. We will then suggest various ways in which these central features have been connected to the external relationships of  the US economy. This will lead us to stress the ways in which these external relationships have  themselves been  shaped by  political drives led by the US government since the 1970s. We will conclude with some general claims and proposals for further research.

Part 1: Key Macro-Economic Relationships in the Boom
As Robert Brenner has emphasised,  the US boom in the 1990s passed through two distinct phases divided in 1995. The phase up to that year was a fairly standard cyclical recovery. The novel features of the boom emerged in the second half  of the decade between 1995 and 2000. As Brenner emphasises, the cyclical upturn in the first part of the 1990s was driven by two key forces: the deep restructuring of the manufacturing sector during the 1980s (involving a major downsizing of work forces and effective downward pressure on wages) and the US Treasury’s switch in dollar policy from 1985: a drive by Baker and his successors for a very large devaluation of the dollar, producing an export-led boom in the first half of the 1990s. The result up to 1995 was a domestic recovery which was very much in line with the US business cycles of the 1970s and 1980s.

What might be called the gear-change to overdrive occurred in 1995. The boom then gathered intensity in terms of GDP per annum growth during the rest of the 1990s. It is worth noting that this watershed year of 1995 was also moment when the US Treasury switched its dollar policy towards a high dollar against the Yen and the Deutsche Mark.

Most accounts of the macro-economics of this second wave of the  1990s boom stress the importance of  continued low inflation and low US interest rates in sustaining the boom. Both these features were not widely expected. There was a very widespread  expectation that historically very high rates of GDP growth would result in strong inflationary pressures leading to higher interest rates, choking off  the expansion. Yet both inflation and interest rates remained low. Hence the idea that some kind of ‘new economy’ had emerged.

There has then been a debate as to how this low inflation and these low interest rates have fed GDP growth. Some authors emphasise the effects of these two phenomena on the supply side: the stimulus they have given to new capital investment, especially in the information and telecoms sectors. Others stress their impact on the demand side, via their stimulus to the US stock market and the  impact of the stock market 'wealth effect'  on consumer spending. Both kinds of effects were occurring and in both cases, the importance of low inflation  in US product markets and low interest rates are given great weight.

We shall address three questions :  why did inflation remain low  despite the extraordinarily rapid GDP growth, fairly tight labour markets and rapidly rising consumer demand in the US? Secondly, why was there downward pressure on interest rates despite the boom? And thirdly, connected to these two phenomena, what have been the determinations of the dollar’s exchange rate vis a vis other currencies?

A. The  Inflation  Rate, Dollar Policy and US Imports
Despite the very high growth rates, low unemployment and very strong rises in consumer demand during the second half of the 1990s, the inflation rate in US product markets remained remarkably low. This contradicted received wisdom, not least orthodox thinking about the non-inflationary rate of unemployment.

No doubt this continued low inflation was the result of a multiplicity of influences. Among the domestic forces at work Brenner emphasises the low trade union density in the US private sector, the success of employers in imposing job insecurity and the rapid increase in the capital stock -- all contributing to the very low growth of unit labour costs. But  he also acknowledges the impact of  the high dollar and of  the impact of  very small increases in import prices upon the US domestic economy. Indeed, he calls this ‘the main active force in keeping down inflation’ and it is this aspect that we wish to explore.

Table 1 illustrates how the high dollar after 1995 entailed  a steadily rising US trade deficit, which, by the end of 2000 amounted to a gigantic 1.5% of world GDP.  

Table 1: US International Trade in Goods and Services (in millions of $)
YearTotalGoodsServices1998-166,897-246,85379,9561999-264,971-345,55980,5882000(to Nov.)-335,887-409,49373,606(Source: Bureau of Economic Analysis, US Commerce Department, January 2001)

But if the trade deficit has been an important product of both the high dollar policy and the domestic consumer boom, the question remains open as to whether  the growing role of imports in the US economy has played an important macro-economic role in maintaining low US inflation.

Of course, the very rise of the dollar stimulates an import surge precisely because it lowers the US prices of these imports.  But it is important to  see where within the US economy these cheapening imports were making their impacts. Table 2 provides a breakdown of the structure of  US goods trade in 1999 by end use. It suggests that imports play an important role across a variety of end uses, including capital goods, but they have been particularly important  in industrial supplies, automobiles and consumer goods.  And in these areas, import prices can have a significant impact on the domestic US price index. If the dollar prices of these imports have been falling, this can be an important disinflationary force within the US economy. And such indeed seems to have been the case during the 1990s boom, particularly in the second half of the 1990s, until the sharp rise in the price of energy imports in 1999 and 2000.

Table 2: Exports and Imports 1999 by Main End-use Category (millions of $)
End UseExportsImportsTotal684,381,029,917Foods, feeds, beverages45,53243,579Industrial supplies147,000222,024Capital goods311,406297,112Automotive vehicles75,756179,393Consumer goods80,768239,466Other goods35,33643,046(Source: Bureau of Economic Analysis, US Commerce Department, January 2001)

Table 3 provides a general overview of  world prices in the 1990s, measured in SDRs. But since the dollar has, in the second half of the 1990s, been high and rising against other currencies, the fall in US prices for industrial raw materials will have been relatively larger than would have been the case, for example, in Europe.
Thus Table 3 understates the falls in US prices for imports of industrial raw materials and other goods.

Table 3:Developments in world trade and prices (Annual Av. % Change)
Item1991-96199719981999Trade volumes6.5103.84.9Trade prices (SDRs)--0.8-4.2-1.6Manufactures--2.70.2-1.7Oil-3.1-0.2-31.237.6Food3.0-6.0-11.2-15.9Beverages2.6 39.9-14.0-21.9Industrial raw materials-2.2  3.9-13.1-3.0(Source: BIS, 70th Annual Report, 2000)

The statistics in Table 3 lend weight to the idea that the prices of industrial raw materials imports were falling very substantially for US companies during the 1990s, exerting a significant impact on final product prices in the US market. In the American consumer goods sector, the rising imports of cheap Chinese consumer goods such as toys is widely recognised as being important. But it would be worth investigating whether the falling prices of industrial supplies has been connected not only to the high dollar but also to long-term structural changes in the economies of the South -- we will return to this point later.

B. Low  Interest Rates and the Inflow of Funds  
If low  inflation is usually cited as one key macroeconomic parameter of the boom, another has been the lowering of interest rates and the maintenance of a low interest rate environment. Those authors who stress the supply side see the interest rate environment as a key to the rise in US investment; others stress its role in fuelling the stock market boom, generating the 'wealth effect' and strong, sustained consumer demand. The question that we wish to investigate here is what the impact of  the US economy’s international location has been on US domestic interest rates.

The boom has been accompanied by an extraordinary flow of funds from governments, corporate and private holders of wealth around the world into the US financial market. Table 4 shows how this trend has developed from the end of the Bretton Woods regime in the early 1970s to 1997, the last year for which such official statistics are currently available.

The really massive increase in the inflow of overseas funds occurred from 1995 onwards. The average annual increase in the flow of foreign funds into the US financial market between 1994 and 1997 was an extraordinary 31.1% per annum. Brenner  stresses the direct relationship in 1995 between the surge of overseas funds into the US financial market and the fall in US interest rates. Between January 1995 and January 1996 interest rates on 30 year T-bonds fell from 7.85% to 6.05% -- a nearly 25% fall. 

Table 4:Foreign Portfolio Investment in the US
By Type of Security (all with an original term-to-maturity over 1 year)
Type of Security197419781984198919941997Equities24.747.8104.9275.2397.8929.0US Treasury Debt23.838.6118.1333.2463.51,053.0US Agency DebtN.A.5.212.847.7107.1252.0Corporate & Municipal DebtN.A.6.932.3191.0275.6572.0TOTAL67.198.5268.0847.21,243.92,806.0    (Source: US Treasury, Report on Portfolio Investment in the United States as of December 31st 1997 (Treasury Department, Washington DC,  2000)

It has often been claimed in the press that the migration of funds into the US was a consequence of  the boom and in particular of  the revived profitability of the US corporate sector as well as of the rapid rise in asset prices in US stock markets. At first sight Table 4  may seem to confirm this, suggesting  that the most dynamic part of the inflow of foreign funds was that into equities  between1994 and 1997. Foreign equity holdings rose in value by 133% as against a 122%  rise in debt securities.  But the figures in Table 4 do not, in fact, point to such a large influx of foreign funds into stock markets. Of the $531 billion growth in the value of foreign equity holdings  only $90 billion was the result of increased foreign purchases of equities; $441 billion was the result of  price appreciation of equities.  The dramatic rise in volume occurred in debt securities, where $898 billion of the increased value resulted from foreign purchases, while only $132 billion was the result of price appreciation.

The overwhelming bulk of these foreign purchases of  debt was concentrated in  the US government sector. Thus, the often made suggestions that  the inflow of  portfolio investment into the US economy was an effect of  the  profitability of  US corporations during the boom is simply false. 

Since the Treasury debt market sets the benchmarks for domestic US interest rates the large inflow of funds into US Treasury debt during the boom  must have exerted  a substantial downward pressure in US domestic interest rates.

The US Treasury acknowledges that this inflow did have an important effect on US interest rates and investment. In its Report to Congress in 2000, it noted: 'Capital inflows continued to increase during the period covered by this report, supporting high levels of business investment in the United States. Capital inflows helped maintain lower interest rates than would likely be possible otherwise.' Brenner argues that this fall in interest rates played a decisive role in launching and driving the steep rise in equity prices from 1995 which in turn in his view  played a major role in stimulating domestic demand and demand-led growth.

Foreign demand for  US debt securities also enabled the US to maintain, without high interest rates, a high dollar, so essential for cheapening the costs to companies and consumers of  imports.  But how strong this effect of foreign demand is, depends upon the scale of foreign  demand relative to the overall size of  particular  US financial markets. Table 5 indicates the changing foreign share of holdings in US securities markets.

Table 5: Percentage share of Foreign Holdings in US Securities Markets
Market19941997Corporate Equities5.6%6.3%Corporate Debt12.3%19.4%Treasury Debt19.4%38.4%US Govt Agency Debt4.9%8.8%Overall total8.9%12.0%(Source: US Treasury, Summary of Report on Foreign Portfolio Investment in the United States (US Treasury, Washington DC, 2000)

The growing weight of the foreign sector in US Treasury debt to a total of over 38% in 1997 is very striking.  It is also worth pointing out that the percentage of  foreign holdings of US equities in 1997 -- 6.3% -- was exactly the same as the percentage of foreign holdings in US equities in 1989 -- also 6.3%.  

Part 2: The Role of US Government Efforts to Restructure the US-Global Political-Economy
We have thus seen how  the dollar exchange rate played an important part in the cyclical revival through an export-led boom in the first half of the 1990s and the dollar’s high exchange rate from 1995 played an important role in the gear change to higher growth in the second phase of the boom We have also seen how the inflow of foreign funds into US government debt markets and how steeply rising imports with falling import prices also greatly contributed to the second phase of the boom. We can now ask what forces played a determining role  in movements of the dollar, movements of foreign funds and the rise of imports combined with falling import prices.

a. Dollar Politics
As  Brenner stresses,  changes in the exchange rate  of the dollar against the yen and the mark  have played a critical role in the course of the US economy over the last 15 years. The revival of the US industrial economy in the late 1980s and early 1990s was closely linked to an export revival which was greatly assisted by the driving down of the dollar's exchange rate with the yen and Deutsche Mark from 1985. And the  gear-change to overdrive in the US boom was driven in large part by the switch of  the US Treasury's policy on the dollar in 1995.

No one seriously disputes that the change of the dollar's direction both in 1985 and 1995 was a result of policy decisions, not a consequence of  factors beyond policy control. This in itself is a striking  demonstration of the difference between the US and most other political economies.  But it is nevertheless widely believed that the US Treasury's  policy shifts on the dollar  depend upon political co-operation with the Japanese government and the German (and now European) authorities. Thus, there is a near consensus that James Baker's ability to bring the dollar down in 1985 depended upon  his gaining co-operation from the G5 through the Plaza Accord. Similarly, Brenner  notes the agreement gained by Rubin from the German and Japanese governments for the turn towards a high dollar in 1995.

Yet the significance of such political co-operation is not universally endorsed by experts in this field. Leading American authorities in particular have disputed  the centrality of the Plaza accord for the turn in dollar policy in 1985:  Destler and Randall Henning argue that Baker was able to bring the dollar down unilaterally, had started to do so before Plaza and decided to use Plaza for purely domestic political purposes. He wanted to defeat domestic opponents of the switch to a low dollar and  sought to use  Plaza  against them by  claiming his hands were tied by the international accord.   This is not to say that international co-ordination was of no significance: it ensured a more orderly decline of the dollar than could otherwise have been the case.

Similarly, it is by no means obvious that  agreement from the German and Japanese governments was necessary to achieve the high dollar policy. The remarkable feature of that policy turn in 1995 was how easily it was achieved: there were two co-ordinated interventions in the foreign exchange markets in 1995 and that was enough to reverse the entire trajectory of  exchange rates. Indeed, there is plenty of evidence that single handed, the US Treasury Secretary can exert a significant impact on exchange rates, just by opening his or her mouth. The reason for this lies in a combination of three factors: the dominance of the dollar as the world currency in all functions of international money; the dominance of the US financial market in international finance, and, increasingly importantly, the liberalisation of capital accounts across the planet.

It is no doubt true that an orderly shift in the major exchange rates requires co-ordination between the major central banks. But that claim is radically different from that claim that the US government lacks strategic autonomy on its dollar policy. While we have seen plenty of demonstrations that neither the European authorities nor the Japanese can reverse their exchange rates with the dollar without US co-operation, we lack any example of  a US government  being thwarted in its dollar policy by resistance in Frankfurt or Tokyo. And the fact that in 1985 and 1995 Washington sought co-operation with those two centres does not indicate that such co-operation was necessary. It merely indicates that co-operative management of the pace of dollar movement  was deemed desirable. And all central banks have a strong institutional interest in avoiding convulsive movements in the major exchange rates.  Thus co-operation with the management of a shift of policy in Washington would be likely from  Frankfurt and Japan even if they opposed the switch in US policy itself.

We do have plenty of examples of either Europe or Japan being very hostile to US dollar policy but being unable  to do anything about it. This was true in Europe with the high dollar in the early 1980s and it was true in Japan with the low dollar in the early 1990s. We also have one recent example of an attempt to launch genuinely concerted international action to thwart US Treasury autonomy on dollar policy: the campaign by the German Finance Minister, Oscar Lafontaine, for co-ordination of Europe and Japan to track the dollar and thus to reduce US policy autonomy in this field in 1998 and early 1999.  But the policy never got off the ground and  Lafontaine did not last long in his government post. This incident rather demonstrates the power of the US in this politically very sensitive field, rather than the reverse.

Thus there is a  strong  case for saying that the US government has a very high degree of policy autonomy in establishing the  exchange rate of the dollar (and particularly the dollar-Yen rate) and in being able to resist any rule-based regime for stabilising the main international exchange rates. This is a huge economic management privilege. The United States government's dollar policy can utterly transform the macro-economic conditions confronting most of the rest of the world economy while itself  being able to gear its monetary policy almost exclusively to domestic conditions, maintaining autonomy from international monetary and financial pressures.

This peculiarity is not the natural result of the dominant weight of the US economy in world GDP or international trade. In 1996 US output accounted for 32.5% of OECD GDP while the European Union's output accounted for 38.3% and Japan's for 20.5%. The United States in 1995 accounted for some 16.6% of world trade while Euro-area  accounted for 18.6% of world trade (excluding intra-Euro area trade).  It derives from two factors: first, the functional benefits of having some  coherent general monetary and financial  mechanisms for the world economy; and secondly from the capacity of the United States to capture that functional benefit for the dollar and for the US financial system.  It could do so because of its  political dominance and near monopoly of credit-power in the post-war years and its political capacity to reshape the international monetary and financial system in the 1970s and 1980s.

The dollar's quantitative dominance as an international currency has, of course, been declining since the 1970s, as Table 6 indicates. But it retains a decisive lead over other currencies in foreign exchange reserves, share of world exports denominated in dollars and share of foreign exchange transactions. 

Table  6 :International Roles of the Main Currencies
ITEMdollarMarkyenShare of  foreign exchange reserves, 198371.311.74.9Share of  foreign exchange reserves, end, 199561.514.27.4Share of world exports denominated in it , 1980 (%)56.413.62.1Share of world exports denominated in it , 1995 (%)52.013.24.7Share of transactions in forex markets, April 1989*902727Share of transactions in forex markets, April 1995*833724Share of outstanding international bonds, end 198152.6n.a.6.9Share of outstanding international bonds, end 199534.214.715.7Share of world private portfolio, end 198167.3n.a.2.2Share of world private portfolio, end 199539.815.611.5(Source: Directorate General II, 'External Aspects of Economic and Monetary Union, Euro Papers, No.1, European Commission, Brussels, July 1997) 
*Note:  these figures are not in percentages, but  out of 200, since any transaction in forex markets involves two currencies.
   
The dollar's continued dominance in these fields is explicable not only in terms of inertia in the use of currencies in international transactions, but also to US political dominance (e.g.  over energy producing zones and transport routes and over other raw material producing zones) and to the depth and liquidity of the US financial market, which lower transaction costs for users. 

The consequence of this politically derived policy autonomy on the dollar have been evident since the 1970s: the US government has been able to gear huge changes in international exchange rates to its purely domestic economic policy objectives. This was demonstrated with the famous Volker turn at the end of the 1970s. The driving down of the dollar after 1985 was geared to reviving  domestic industrial performance and then generating an export-led boom. And the switch to a high dollar from 1995 was geared, as in the case of the Reagan administration's policy in the early 1980s, to attracting large inflows of funds from abroad to stimulate domestic investment and drive down interest rates (as well, no doubt, as other objectives). And the consequences of the  high dollar also included not only a steep rise in imports but also a cheapening of  these  imports, driving down the inflation rate even in the context of  a speeding-up of  US domestic growth.

It is worth pointing out  that these US gains from  dollar dominance   and resulting policy autonomy have been greatly enhanced by the peculiar features of the international monetary and financial system which the US has put in place and defended over the last 20 years: the absence of  institutionalised constraints on the dollar's exchange rate, the ending of capital controls and the 'liberation' of private finance from restrictions on the international movement of funds calls private financial operators to the aid of US government policy makers: purely verbal signals from US policy makers as to dollar policy brings swift private sector action internationally thus massively re-enforcing the capacity of US governments to make  policy turns. 

We thus notice a paradox of 'globalisation' in the American case. While currency volatility and the free movement of finance is experienced by the governments of other countries as a constraint upon their economic management capacities, the reverse is true of the US: the international monetary and financial regime largely constructed by successive US administrations since the 1970s, actually frees US governments from international constraints and subordinates absolutely central parameters of global macro-economics to the domestic policy objectives of the US. 

Thus US monetary policy, as expressed by the movement of the federal funds rate, can be explained as the result of exclusively domestic  variables: for the 1980s and most of the 1990s these were the US rate of inflation and the domestic unemployment rate relative to a full employment norm. Later, of course, Greenspan started moving interest rates in response to his perceptions of  how to cope with dangers of credit crunches and speculative frenzy in the US financial system itself. But international variables ccould be ignored. While the ECB, not to speak of the Japanese government, have had to take account of  external variables in their interest rate policies, the US has not.

b. Free Movement of Finance
Explanations of the  large inflows of foreign funds into US government debt markets also lead us back to government policy and politics. The surge of  funds into the US financial market after 1995 was only partly explicable in terms of the rise of the dollar against other main currencies. There has also been a long term trend in this direction since the 1970s produced by the effects of  a series of changes in the international monetary and financial system driven forward by successive US governments since the end of Bretton Woods: first, the ending of capital controls on the international movement of private finance in the G7 countries (in the US in 1974, the UK 1979, Germany 1982 etc); secondly the drive to end capital controls in the rest of the world after the completion of  the ending of such controls in the EC by 1990 - a diplomatic drive culminating in the change of the IMF’s rules in this field in 1997. These changes in the international financial system have then interacted with the floating exchange rate regime to create a new structure for the combined international monetary and financial system, a structure which we have called elsewhere the Dollar-Wall Street Regime (DWSR).

This new system possesses a number of historically distinctive features which have transformed  the macro-economic environment facing other governments around the world:
1.	constant volatility in the main exchange rates both on a daily basis and through what may be called macro-swings such as those we have described above.
2.	surges of finance outwards from the US and other G7 financial sectors and back towards these sectors, driven by changing financial conditions in the main economies and  by  financial blow-outs in various non-core economies.
3.	spreading and deepening indebtedness on the part of countries in the South with the debt typically denominated in dollars and with variable interest rates linked to US market rates, thus making financial conditions facing governments in the South extremely sensitive to - and often vulnerable to - changes in dollar values and US interest rates as well as dependent upon the judgements of US rating agencies.

One effect of  this new system has been to increase greatly the vulnerability of  other countries’ currencies and financial systems. To try to protect themselves, government must build up large foreign exchange reserves. Given the dollar’s dominance and the preponderance of dollar-denominated debt, these reserves must be heavily weighted towards dollar holdings. Such dollar reserves of central banks are typically placed in the US financial market and especially in US government debt markets. When a government’s currency comes under attack, its central bank will then sell its holdings of US treasury debt in order to buy its own currency.

There has thus been a long-term trend since the 1970s for other governments around the world to increase their holdings of US Treasury debt, a trend which did not begin suddenly in 1995. And at the same time, any sign of a major turn on the part of the US Treasury from a low dollar policy to a high dollar policy will characteristically lead to a surge of such inflows as other governments seek to augment their holdings of Treasury debt on the upswing. The inflows of funds into the US Treasury securities market  came mainly from foreign governments needing to hold large foreign exchange reserves in dollars. Although in much of  what might be called the Washington consensus literature great stress in laid on the supposed benefits of large outflows of portfolio investment from the US into other countries financial systems such flows are usually far smaller than the flows in the other direction into the US government debt market.

A systemic characteristic of the DWSR has, of course, been to generate currency and financial crises in non-core economies. This characteristic became more marked and more dramatic in the 1990s. It has been an important contributory factor generating large inflows of funds into the US financial markets, as the US Treasury itself acknowledges, noting that the inflow  of funds in the late 1990s was also driven by  'upheaval in some foreign markets' -- in other words by flight from  the currency and financial instabilities in the South.  We have thus faced the paradox that financial crises in the periphery have been functional for US economic growth in the boom at least insofar as US-led IMF policy has been designed to ensure that US creditors are fully bailed out by collapses in Mexico, East Asia and elsewhere, with the costs of these bail-outs them being borne by domestic social groups in the countries faced by financial devastation.

C. Terms of Trade and Restructuring the South
The rise in the volume of imports into the US economy combined with the tendency towards falls in their prices during the 1990s is connected not only to changes in the dollar exchange rate but to longer-term structural changes in the economies of the South as well as those in East Asia.

More research would need to be done on the likely quantitative impact of  Southern restructuring on US imports and import policies. Here we will do no more than sketch a few issues. Since the early 1980s, the (often debt related)  currency crises and financial crises in the South have typically produced IMF/World Bank restructuring  packages transforming these economies’ internal and external relationships. Old development models such as import-substitution or state socialist growth models have been scrapped and have been replaced by free market, export-oriented models in which the countries concerned have been offered the prospect of a return to growth through exporting their way out of debt into the core economies and especially into the US economy. The standard formula involves an obvious priority for the interests of creditors in the countries of the North: cuts in domestic social spending free budget resources for debt servicing; a domestic recession plus a hefty devaluation of the currency turn domestic producers outwards towards exports which then earn hard currency to pay off debt obligations. 

But the serial repetition of these structural adjustment packages across many countries produces a second dynamic set of changes. A currency devaluation in one commodity exporting country places competitive strains upon other countries exporting the same commodity, thus tending to drive down the prices of their exports. This factor, along with the other systemic tendencies towards currency and financial crisis, described above, can produce a financial crisis in the second country, leading it, in turn, to devalue and launch a deeper export drive. This then creates a spiralling competitive race to the bottom among commodity exporters.

The result, for many countries of the South, has been a truly catastrophic deterioration of  their terms of trade with the Northern economies, driving down the relative prices of  raw materials imports for  the US and other Northern economies. This worsening of the terms of trade for non-fuel commodities vis-à-vis manufactures has been dramatic ssince 1980. According to UN data these terms fell from 147 in 1980 to 100 in 1985 to 71 in 1992 -- a 52% fall in 12 years which, as Martin Khor  points out, has had catastrophic effects on the economies of the South and the trend has even accelerated in the 1990s. UNCTAD's Trade and Development Report, 1999 states that between the end of 1996 and February 1999, non-oil primary commodity prices fell 33.8% while oil prices fell by 16.4%.  And these falls in prices of  goods exported to the United States in the late 1990s also affected  some exporters of manufactured products. Thus the same UNCTAD report states that South Korean manufactured exports experienced a fall in their terms of trade by no less than 25% between 1995 and 1997.

Although supporters of the Washington consensus have argued that structural adjustment for the Southern (and former Soviet Bloc) economies  should be seen as the consequence of the failure of earlier development strategies, Dani Rodrick has demonstrated that this  is false:  the collapse of these strategies was not the result of endogenous features of the strategies themselves but rather a consequence of the failure of governments to manage rapid, unpredictable and radical changes in their monetary and financial environments -- a problem whatever the national development strategy adopted. In other words, the collapse of  such development strategies was itself connected to the emergence of the Dollar-Wall Street Regime in the 1970s and of the failures of many governments to understand the likely consequences for their own national economic stability of that new, US-led regime.

D. Other Impacts of  US International Statecraft. 
We have by no means exhausted  the fields in which US government action in the international political economy may have made a significant impact upon the domestic performance of the US economy during the boom of the 1990s. One of the most striking aspects of the US boom has been the expansion of US exports. Another has been the rising profits of US international financial operators and other US international services (as Table 6 illustrates). The export boom is surely connected  not only to the low dollar in the early 1990s -- exports continued to rise under a high dollar regime -- or to productivity improvements in US industry, but to US capacity to exert international political leverage to reorganise market relationships in the international economy, notably through the US's ability to set the agenda of the Uruguay round and through the very aggressive diplomatic efforts of the Clinton administration to open other markets to US products and services and to engage in various kinds of managed trade. 

Table 7: US Service Trade by Major Categories
Service1998 exports1998 importsTotal262,653182,697Travel71,28656,09Passenger fares20,09819,971Other transport25,60430,363Royalties & licence fees36,19711,713Other private services90,91449,051Transfers under US military sales contracts17,62812,241(direct defence spending abroad)US govt misc. services9262,849(Source: Bureau of Economic Analysis, US Commerce Department, January 2001)

Such reshaping activities have been a central concern of the Clinton administration since 1993. It made, for example, the drive to open other markets to US  exports and undertakings a question of US national security policy. The dominant position of  the US financial market internationally has ensured that the necessary efforts to regulate  banks and other financial operators internationally has, since the 1980s, been structured to favour the interests of US financial operators.  

And it is important to recognise that such US  leverage over the international political economy derives not only from the DWSR and its off-shoots (e.g. in the work of the  international financial institutions) but also, and most fundamentally, from  the United States' overwhelming dominance in the military-political field. US military assets continue to be used effectively to shape the political environments of all the significant centres of capital accumulation in the world. The states affected find themselves dependent in their strategic environment as US decisions in the military-political field. They also often find their immediate geographical periphery is shaped politically by US military power and US military capacity also controls the sources and supply routes of  their vital imports of energy and other raw materials. The fact that the United States has been able to suppress the 'balance of power' within the advanced capitalist world is surely of great economic significance. US governments have been able in the past and continue to be able in the present to 'cash' such military-political predominance in the form of  support for economic policies which favour US economic interests. 

The task of tracing the economic effects of such US global power is not an easy one, but it is necessary to build this dimension into any analysis of  the  performance of the US economy.

Conclusion
We have argued here that some of the fundamental macro-economic parameters of the US boom have been furnished by the new relationships between the US economy and the rest of the world, relationships which have arisen not mainly through molecular, 'organic' processes at the level of market exchange but through the exercise of  US statecraft resting on the global power of the US state. But these claims should in no way be taken to be a denial of the importance the debates about what has been happening in domestic economic and social relationships within the United States. Any serious assessment of the boom must address such issues as the nature of the US labour market and of power relationships within it, the institutional and social structures of the US financial sector and of its relationship with the productive (and consumption) sector, the role of the information sectors and of more traditional manufacturing sectors and the impacts of new technologies. The fact that the very favourable international macro-economic environment  fed through into a boom heavily skewed towards an unprecedented stock market asset price bubble is itself precisely an indicator of the importance of domestic institutional arrangements and transmission mechanisms.
Our claim is simply that the external  economic and political parameters must also be integrated within the analysis and be given a large weight.

It is perhaps also worth underlining that we have not attempted to examine the ways in which US global power has been  used to reshape the overall sources of profit of  the US enterprise sector over the last two decades, enabling American capital to expand the scope and  depth of its capacity to extract value from the rest of the world economy, thus transforming its  capacity for domestic investment  and its perspectives for planning new investments in its most dynamic sectors. We have instead, restricted ourselves to a few key macroeconomic parameters of the boom. 

Exactly what the quantitative impact of these new relationships between the US and the international political economy has been requires further research. But we have sought to prove that at a qualitative level these international relationships are important and that they probably have substantial quantitative weight.

The US's unique location in economically relevant international power relationships is obscured in the discourse of 'globalisation'. A very large part of the claims made by the proponents of  a contemporary 'economic globalisation' of the world economy  relates to transformations in the field of international money and finance. These transformations are usually presented as imposing serious international and domestic constraints on government economic policy and as setting the macro-economic context for growth.  Yet these very same 'globalisation' developments create an opposite effect upon US economic policy. The Dollar-Wall Street regime precisely frees the US government from earlier constraints upon its exchange rate and interest rate policies, enabling it to gear these policies almost exclusively towards achieving domestic policy goals. Thus, precisely the same globalising forces have diametrically opposite effects upon the US on the one hand and upon the rest of the world on the other. They have been a force for liberating the US government from  the kinds of constraints to which other governments are increasingly subjected. Globalisation deglobalises US macro-economic policy. US macro-economic policy has, over the last twenty five  years if anything  become much less constrained by international economic flows than it was under the Bretton Woods regime. Thus while other economies and governments experience  new kinds of subordination to international economic processes, from the angle of the US economy globalisation can rather present itself as an Americanisation of the world economy -- a process of harmonising the rest of the world to the rhythms and requirements of the US economy.

This 'Americanisation' of the world  economy has tended to produce  counter-points in the other two core centres involving both adaptation and efforts to construct shielding mechanisms: regionalising arrangements. Insofar as the US boom of the 1990s has generated new,  historically significant growth motors in capital goods transforming  productivity on an historical and global scale, such shielding efforts of the other centres will no doubt be historically insignificant and the Americanisation of the world economy will become more organic. But insofar as the boom has failed to herald a new phase of  'Industrial Revolution' we may expect that  the  bases of  US economic management in the recession and subsequent upturn  will remain strongly dependent upon  the US government's continued ability to manipulate the monetary and financial mechanisms of the world economy  unilaterally in the interests of US capitalism.

This in turn will presumably lead American administrations to continue to search for ways of ensuring that US military power can be used effectively  as an instrument of  political leverage over the political economies of Europe and the Pacific Rim  thus ensuring that  pressures to replace the DWSR with more collegial and stability-enhancing monetary and financial regimes are thwarted. Such leverage will no doubt be sought by seeking to ensure continued strategic dependence on the part of Europe and Japan respectively on the US-Russian and on the US-Chinese relationship, as well as by seeking to patrol the geographic peripheries of the two other centres. And the requirements of domestic US growth  will also presumably mean continued US resistance to  a new, development-oriented place for commodity producers in the South within the world economy.