by Barnaby Philips
In Imperialism: the highest stage of capitalism, Lenin wrote that ‘the world has become divided into a handful of usurer states and a vast majority of debtor states’. Since formal decolonisation in the 1960s, his work has been dismissed as antiquated, even among sections of the radical Left. Now in 2017, with the capitalist system sinking into its deepest crisis since Lenin’s day, a new study into global trade has shown his analysis to be as relevant as ever. It revealed that between 1980 and 2012, the net outflows of capital from ‘developing and emerging’ oppressed countries being funnelled into ‘developed’ imperialist nations totalled $16.3 trillion. The truth about our ostensibly post-colonial world is that poor nations are still developing rich nations, the opposite of what we are so often told.
On 5 December 2016, the US-based Global Financial Integrity (GFI) and the Centre for Applied Research at the Norwegian School of Economics published the report Financial flows and tax havens: combining to limit the lives of billions of people.1 It found that in 2012, the last year of recorded data, ‘developing and emerging countries’ – in Central and South America, Africa, Eastern Europe, the Middle East and Asia – received a total of $1.3 trillion, including all aid, investment, and income, but that $3.3 trillion flowed out in the opposite direction to the ‘developed world’ – North America, Western Europe, Japan, South Korea and Australia.
These figures express the contemporary reality of imperialism: that a minority of oppressor nations, led by the US and Britain, plunder the rest of the world, oppressed nations, for profit and resources. As Lenin explained, the economic imperative behind this social relationship stems from the fact that capital exported from oppressor to oppressed nations is able to exploit cheaper labour and weaker regulations, guaranteeing higher returns. The wealth created by workers in these nominally sovereign nations is redistributed to the imperialist heartlands via parasitic multinational corporations and banking centres like the City of London.
Unequal ‘licit’ outflows
This comprehensive study was based on balance of payments and bilateral trade data, including official ‘development assistance’, loans, repayments, debt cancellation, foreign direct investment, portfolio investment, remittances, contributions from religious and charitable organisations, and recorded and unrecorded trade flows.
Over the studied period, the average ‘licit’ recorded financial transfers to and from developing countries through their balance of payments – net profits made in oppressed nations but transferred to imperialist countries via multinational companies – amounted to an annual deficit of $90.1bn. The way the global capitalist system works means profit usually inflates the GDP of where a product is consumed, rather than where it is made. This relationship was reflected in another report in 2016 which revealed that 101 companies registered to the London Stock Exchange control resources in 37 African countries worth more than $1 trillion.2
Added to the profits drained out of oppressed nations are interest payments on debt owed to imperialist countries, which over the 32-year period amounted to $4.2 trillion. During this time, oppressed nations desperate for capital to jump-start flatlining economies have acquired loans from the International Monetary Fund on the condition that they implement neoliberal reforms: state industries are sold off to foreign investors and public spending is slashed. Imperialism, as it always has done, continues to underdevelop the rest of the world, fuelling destructive short-termism and a vicious cycle that sees many oppressed nations lurch from one bankruptcy to another. As the report says, ‘these resources represent immense social costs that have been borne by the citizens of developing countries around the globe’.
Inside the imperialist nations, the middle classes and ‘labour aristocracies’, privileged sections of the working classes – expressed politically in Britain, for example, through the Labour Party – have enjoyed higher living standards as a result of this parasitic system, receiving extra crumbs from the super-profits on the imperialist table, while the rest of the world has been left to suffer.
Illicit capital flight
The unrecorded trade flows which the report studied usually refer to illicit capital flight, which proved to be by far the biggest contributor to capital outflows – $13.4 trillion in 1980-2012, or 82% of all ‘Net Resource Transfers’. Such fraudulent activity is committed when corporations report false prices on their trade invoices to spirit money into tax havens, usually situated in imperialist states or their offshore territories, a practice known as ‘trade misinvoicing’. It is mostly used to evade taxes, but also to launder money or circumvent capital controls. In 2012 oppressed nations lost $700bn through trade misinvoicing. Illicit outflows were roughly 1.3 times the $858bn received in Foreign Direct Investment and 11.1 times the $99.3bn received in ‘official development assistance’. As a percentage of GDP, Sub-Saharan Africa suffered the biggest loss of illicit capital, an average 6.1% of annual GDP compared to a global average of 4.0%.
The report’s headline figures are relatively conservative estimates as they do not include the fraudulent practice of ‘same-invoice faking’, which is difficult to detect but estimated to cost another $700bn a year. This involves multinational companies shifting profits illegally between their own subsidiaries by mutually faking trade invoice prices on both sides.
Overall, for every $1 of aid that developing countries receive, they lose $24 in net outflows. The self-acclaimed philanthropists beloved by liberal imperialists may ‘give something back’ but in reality they enrich themselves on the backs of the world’s poorest people in the first place.
Ineffectual calls for reform
The report has led to calls for reforms to what is perceived by left-leaning liberals as an unbalanced global system of trade and finance. Commenting in The Guardian (14 January 2017), Jason Hickel writes: ‘We could write off the excess debts of poor countries, freeing them up to spend their money on development instead of interest payments on old loans; we could close down the secrecy jurisdictions, and slap penalties on bankers and accountants who facilitate illicit outflows; and we could impose a global minimum tax on corporate income to eliminate the incentive for corporations to secretly shift their money around the world.’
Implementing such measures requires revolution. They would never be enforced by the capitalist states whose sole purpose is to protect and advance ruling class interests, especially when the world is already engulfed by a profitability crisis. While it is true that stronger regulations have existed in the past, they were necessarily weakened by right-wing neoliberals to help resolve the global economic crisis that erupted in 1973. Likewise, imperialism’s emergence as the highest stage of capitalism was no accident or wrong turn, but a necessary stage in the system’s development. It is capitalism in its monopolistic, decaying and parasitic phase. Calls for ‘transparency’ with regards to tax havens also miss the point, as such a move would only necessitate the further slashing of corporation tax.3 Tax havens exist not simply because of greed but because the profitable opportunities needed to reinvest the capital stored in them do not exist. The only way to overcome this contradiction is to replace the profit motive with socialist central planning.
2. ‘Plundering Africa: British imperialism 2016’ https://tinyurl.com/z3ta4nw
3. ‘Panama Papers: when cheating becomes necessary’ FRFI 251 June/July 2016 https://tinyurl.com/zws3omo
The article above is taken from Fight Racism! Fight Imperialism!, issue 256, April/May 2017, here.