An Emerging New Financial Imperialism

The recurring Greek debt crises represent a new emerging form of Financial Imperialism. What, then, is imperialism, and especially what, when described as financial imperialism? How does what has been emerging in Greece under the Eurozone constitute a new form of Imperialism? How is the new Financial Imperialism emerging in Greece both similar and different from other forms of Imperialism? And how does this represent a broader development, beyond Greece, of a new 21st century form of Imperialism in development?

The Many Meanings of Imperialism

Imperialism is a term that carries both political-military as well as economic meaning. It generally refers to one State, or pre-State set of political institutions and society, conquering and subjugating another. The conquest/subjugation may occur for largely geopolitical reasons—to obtain territories that are strategically located and/or to deny one’s competitors from acquiring the same. It may result as the consequence of the nationalist fervor or domestic instability in one State then being diverted by its elites who are under domestic threat, toward the conquest of an external State as a means to avoid challenges to their rule at home. Conquest and acquisition may be undertaken as well as a means to enable population overflow, from the old to the new territory. These political reasons for Imperialism have been driving it from time immemorial. Rome attacked Carthage in the third century BCE in part to drive it from its threatening strategic positions in Sicily and Sardinia, and also to prevent it from expanding northward in the Iberian Peninsula. Domestic nationalist fervor explains much of why in post-1789 revolutionary France the French bourgeois elites turned to Napoleon who then diverted domestic discontent and redirected it toward military conquest. Imperialism as an outlet for German eastward population settlement has been argued as the rationale behind Hitler’s ‘Lebensraum’ doctrine. And US ‘Manifest Destiny’ doctrine, to populate the western continent of North America, was used in the 19th century as a justification, in part, for US imperialist wars with Mexico and native American populations at the time.

But what may appear as purely political or social motives behind Imperialist expansion—even in pre-Capitalist or early Capitalist periods—has almost always had a more fundamental economic origin. It could be argued, for example, that Rome provoked and attacked Carthage to drive it from its colonies on the western coast of Sicily and thus deny it access to grain production there; to deny it strategic ports on the eastern Iberian coast from which to trade; and eventually to acquire the lucrative silver mines in the southernmost region of the peninsula at the time. Nazi Germany’s Lebensraum doctrine, it may be argued, was but a cover for acquiring agricultural lands of southern Russia and Ukraine and as a stepping stone to the oil fields of Azerbaijan, Persia and Iraq. And US western expansion was less to achieve a population outlet than to remove foreign (Mexico, Britain) and native American impediments to securing natural resources exclusively for US use. US acquisitions still further ‘west’—i.e. of Hawaii, the Philippines and other pacific islands were even less about population overflow and more about ensuring access to western pacific trade and markets in the face of European imperialists scrambling to wrap up the remaining Asian markets and resources.

Imperialism is often associated with military action, as one State subdues and then rules the other and its peoples. But imperialist expansion is not always associated with military conquest. The dominating State may so threaten a competitor state with war or de facto acquisition that the latter simply cedes control by treaty over the new territory it itself had conquered by force—as did Spain in the case of Florida or Britain with the US Pacific Northwest territories. Or the new territory may be inherited from the rulers of that territory. Historically, much of the Roman Empire’s territory in the eastern Mediterranean was acquired this way. Or the new territory may be purchased, one state from the other—as with France and the Louisiana Purchase, Spanish Florida accession, and Russia’s sale of Alaska to the US.

In other words, imperialism does not always require open warfare as the means to acquisition but it is virtually always associated with economic objectives, even when it appears to be geo-political maneuvering or due to social (i.e. nationalist ideology, domestic crises, population diversion, etc.) causes.

Colonies, Protectorates, and Dependencies

Another important clarification is the relationship between imperialism and colonialism. A colony is a particular way—not the only way—inn which an Imperialist state might rule over and manage an acquired state and its economy. A colony is a particular political form. As Hobson, one of the original theorists of imperialism, accurately explained, a colony is a form of imperial rule in which the imperialist state has full control over the legislature, the government and bureaucracy of the dominated state. Moreover, the extent of colonization may vary. There are colonies which have their own representative legislatures, but no government except the appointed governor of the Imperial state. There are also colonies with their own representative legislature and representative government, but where the Imperialist state exercises veto power over legislation and government decisions.

In contrast to a colony, a protectorate is where a bilateral agreement exists between the imperial and the dominated state in which the latter cedes certain authority to the former. The dominated state may retain full formal independence in the sense of selecting its own representative legislature, government and bureaucracy, but agree to the imperial state determining certain of its policiessuch as foreign policy or military policy. Institutions managing foreign-military policy in the dominated state may be simply coordinating agencies ensuring implementation and consistency with the imperial state policies. It may be argued that Scotland today is a political protectorate of Britain. So too Catalonia, of Spain. And Puerto Rico, of the US.

And as Hobson further explained, 19th century states like Canada and Australia had representative institutions but no imperial state governor or right to veto. They had even by late 19th century their own military and political policies. Nonetheless, these States’ economies were significantly integrated with that of the imperial state, the United Kingdom. So what were they, if not colonies? They may have been politically independent but were they economically dependent? At the time, they may not have been political protectorates, but could be argued to have been economic protectorates.

A dependency refers to dominated economies whose growth is dependent on the trajectory of growth in the imperialist economies. The dominated economies are so structured by the imperialist that they are unable to grow independently. Dependency is a purely economic structure. There are no forms of political control, as in protectorates and degrees of colonization. But there is economic influence and control exercised by the Imperialist economies over the dominated. This control is exercised largely by controlling the flow of money capital and investment into the dominated economies. Investment into the latter—sometimes called FDI (foreign direct investment)— only takes forms that benefit the Imperialist economies.

While economic dependency has been associated mostly with states that were once colonies and economic protectorates in the pre-1970 decades, a new trend is emerging in states with smaller economies locatednear major imperialist economies. Greece today shows signs of similarity to the kind of economic dependency that was once associated only with post-colonial, post-protectorate economies. However, as will be argued, Greece today also represents an emerging new form of economic protectorate. The Euro regime, even before the debt crises eruptions of 2010-2015, had imposed relationships of dependency upon Greece. Since 2010, however, Greece has evolved from a dependency to an economic protectorate.

Capitalism as a system is constantly restructuring and remaking itself. Imperialism is a basic element of it, but it does not expand and deepen at the same pace at all times. It ebbs and flows. Old forms of imperialism accelerate, penetrate, become established and then decline, then give way to new, and often even more ‘efficient’ forms. Late 19th century European imperialism, focusing on Africa, was similar in many ways, but also different from 18th century British imperialism or 17th century Spanish and Dutch imperialism. There was very little ‘self-government’ associated with the new imperialism of that period. Its political form was nearly always full colonization with the associated political institutional control.

Greece is not a colony of the Troika, but it is increasingly dependent on the Troika financially (i.e. in terms of credit and debt) and passed over the threshold to an economic protectorate since 2010.

Greece as an Economic Protectorate

An economic protectorate exists when the dominated State cedes control of certain of its economic institutions, policies and economic assets to the imperialist. Following the third Greek debt agreement of 2015, that is what Greece became. The “imperialist state” in this case is the Eurozone’s supra-national institutional bodies—the Troika of the European Commission, the European Central Bank, the IMF, and the pan-European court system ruling on their decisions, etc. And to the extent that the Troika institutions define the economic policies of Greece’s central bank, dictate allowable economic policy to the Greek legislature, set the budget, government spending and taxing parameters of the Greek government—then the Troika is defining and determining the economic policies of Greece. Greece has ceded this economic control to the Troika under duress, so it cannot be considered to have done so voluntarily. The debt agreements have been ‘negotiated’ in name only, in only a formal sense. The demands and proposals of the Troika have become virtually all the final terms and conditions of the debt agreements. There is little of Greece’s original proposals in the agreements. So the agreements are the result of ‘one-way’ negotiations or, in other words, they were not really negotiations at all since that would imply some reasonable degree of compromise by both parties.

An economic protectorate has thus been imposed upon Greece. Greece has become an economic suzerainty of the Troika, a de facto economic vassal state of the Eurozone.

Not only has the Troika defined Greece’s economic policies. It directs the policies of its central bank, making it an appendage of the ECB. Greece’s central bank does what the ECB asks, even to the point of criticizing its own Greek government and agreeing with the ECB’s policies that negate the Greek central bank’s role of supporting its own Greek banking system.

In exchange for Troika credit and debt, Greece’s Parliament cannot introduce legislation that may contravene the debt agreements or the budget policy set by the agreements. Nor can Greece’s legislature pass any fiscal measures—nor can government agencies initiate fiscal measures—that the Troika considers may in any way inhibit the attainment of the budget targets it, the Troika, has defined. Reportedly, representatives of the Troika remain on site and are responsible for ensuring no legislation or executive action contravenes the debt agreement and its objectives.

Greece’s government must maintain spending within the parameters defined by the Troika- determined debt agreements. Greece’s government cannot decide unilaterally whether to cut spending, or on what, or whether to cut or raise taxes, and on whom. It is told what programs it must implement to reach that budget target. The Troika de facto veto power reportedly extends down to the local government level, to ensure that local administrators implement the debt-imposed austerity as defined in the terms of the agreement.
In short, Greece now has no independent central bank and thus no independent monetary policy. It has no currency of its own that it might devaluate in order to stimulate exports and growth. Its limited fiscal authority of action has been taken away, as it is no longer allowed to determine its budget, spending programs, and taxation policies. Greece no longer has independent economic institutions of any significance. It has ceded them to the Troika. Greece’s parliament and government may exercise non-economic decisions and initiatives; but these are subject to veto by the Troika should Greece attempt to exercise economic initiatives.

Wealth Extraction as an Imperialist Objective

Whether via a bona-fide colony, near-colony, economic protectorate, or dependency the basic economic purpose of imperialism is to extract wealth from the dominated state and society, to enrich the Imperialist state and its economic elites. But some forms of Imperialism and colonial arrangements are more ‘profitable’ than others. Imperialism extracts wealth via many forms—natural resources ‘harvesting’ and relocation back to the Imperial economy, favorable and exploitive terms of trade for exports/imports to and from the dominated state, low cost-low wage production of commodities and semi-finished goods, exclusive control of markets in the dominion country, and other ways of obtaining goods at lower than market price for resale at a higher market price.

Wealth extraction by such measures is exploitive—meaning the Imperial economy removes a greater share of the value of the wealth than it allows the dominated state and economy to retain. There are least five historical ways that imperialism thus extracts wealth. They include:

Natural Resource Exploitation

This is where the imperial economy simply takes the natural resources from the land and sends them back to its economy. The resource can be minerals, precious metals, scarce or highly demanded agricultural products, or even human beings—such as occurred with the slave trade.

Production Exploitation

Instead of relocating the resources and production in the home market at a higher cost, the production of the goods is arranged in the colony, and then shipped back to the host imperial country for resale domestically or abroad. The semi-finished or finished goods are more profitable due to the lower cost of production throughout the supply chain.

Landed Property Exploitation

The imperialist elites claim ownership of the land, then rent it out to the local population that once owned it to produce on it. In exchange, the imperialist elites extract a ‘rent’ for the use of the land.

Commercial Exploitation

Here the imperialist elites of the home country, in the form of merchants, ship owners, and bankers, arrange to trade and transport goods both to and from the dominated economy on terms favorable to their costs. By controlling the source of money, either as currency, credit, or precious metals, they are able to dictate the arrangements and terms of trade finance.

Direct Taxation Exploitation

More typical in former times, this is simple theft of a share of production and trade by the administration of the imperialist elite. The classic case, once again, was Imperial Rome and its economic relations with its provinces. It left the production and initial extraction of wealth up to the local population, while its imperial bureaucracy, imposed locally, was simply concerned with ensuring it received a majority percentage of goods produced or traded—either in money form or ‘in kind’ that it then shipped back to its home economy Italy for resale. A vestige of this in modern colonial times was the imposition of taxation on the local populace, to pay for the costs of the Imperial bureaucracy and especially the cost of the imperial military apparatus stationed in the dominated state to protect the bureaucracy and the wealth extraction.

The preceding five basic forms of exploitation and wealth extraction have been the subject of critical analyses of imperialism and colonialism for more than a century. What all the above share is a focus on the production and trade of real goods and on land as the source of the wealth transfer. The five types of exploitation and extraction disregard independent financial forms of wealth extraction. Both capitalist critics and anti-capitalist critics of imperialism, including Marxists, have based their analysis of imperialism on the production of real goods. This theoretical bias has resulted in a disregard of the forms of financial exploitation and imperialism, which have been growing as finance capital itself has been assuming a growing role relative to 21st century global capitalism.

‘Reflective’ Theories of Imperialism

Marx never referred to imperialism per se, but did address colonialism—in Ireland, India, and China. He thus focused on its political forms of enforcement. The economic objective in all cases was extraction of surplus value and wealth from these colonies, but he described this extraction in terms of production exploitation and/or commercial-trade exploitation. The focus was always on real goods or physical commodities, their production and trade. Exploitation by financial arrangements was not considered primary, or independent of production, because financial relations were always a consequence of production. This was a ‘reflection theory’ of growth, of crises, as well as of imperialist exploitation.

Marx’s own explorations of banking and finance in his final unpublished notes, in his posthumous publication of Capital, volume III, edited selectively by Engels, were left undeveloped. Marx left contradictory messages in his latest notes on whether ‘finance was subordinate to industrial production’ or not. Engels in 1890 solidified the assumption that finance was a mere reflection of production (and therefore imperialism always extracted wealth by the former and not via financial relations). As Engels put it in a letter of October 27, 1890 to a Swiss journalist, finance plays a subordinate role to real production. However, like Marx, he left the door open with a qualification: “As soon as trading money becomes separate from trade in commodities it has a development of its own, special laws and special phases determined by its own nature”. So classical Marxism of Marx and Engels remained cautious about whether financial capital and Imperialism could act independently of industrial capital and production. How to compromise the two views?

This somewhat reluctant recognition that perhaps finance capital independent of industrial capital (production) and merchant capital (trade) might develop its own form of imperialist exploitation per se was recognized as well by J. Hobson in his classical book, Imperialism. In his closing remarks in chapter VII, summarizing the economics of imperialism, Hobson addressed the topic of ‘Imperialist Finance’. He raised the idea of public debt as “a normal and a most imposing feature of Imperialism”. He was referring foremost to the use of public debt by the Imperialist state to pay for the costs of military occupation and administration of the colony. But he also recognized that other kinds of public debt were possible in the imperialist-colonial relationship. Public bonds and loans were a profitable business for bondholders and finance capitalists in general, as “state guaranteed debts are held largely by investors and financiers” worldwide and not only in the Imperialist country. Hobson concluded that imperialism by its very nature is integrally connected “to the moneylending classes dressed as Imperialists and patriots”. What the possible connections between public debt and the moneylending imperialists were, exactly, was not described; nor were the relationships between industrial capital and finance capital in the pursuit of imperialist expansion. Was finance subordinate to industrial capital, as most Marxists seemed to suggest; or was it potentially independent as well?

The classical Marxist bias toward production first—and finance as merely a reflection of production—has its ultimate roots in classical economics’ preoccupation with production, productive labor, and growth. Classical economics, from Adam Smith on, poorly understood banking and finance. And Marxist economists, as inheritors of much of classical economics’ conceptual framework, repeat the same production and real goods bias of classical analyses. They therefore view financial effects as a consequence of industry and production. Imperialist wealth extraction must consequently also reflect production and trade of real goods, and not financial forces.

After Engels, most notable Marxists adopted this view. Marxist Rudolf Hilferding, in the early 20th century, attempted a compromise between the two views on the role of finance in Imperialism. According to Hilferding, in the 19th century Marx and other bourgeois economists viewed the world in terms of industrial capital and financial capital. The convergence of the two in the late 19th century resulted in what Hilferding called ‘finance capital’, which was industrial capital that had turned to financial capital independently, bypassing banks. Industrial capital had expanded so greatly, forming ‘trusts’ and raising money capital as ‘joint stock companies’, and becoming monopolies, that industrial capitalists now were able to raise their own capital and were able increasingly to bypass traditional banks as sources of capital. Industrial capital and finance capital had thus merged. Industrial capital was monopoly capital and monopoly capital had become an ascendant force within Finance Capital. Monopoly finance capital became the driving force of the new Imperialism in the early 20th century, according to Hilferding.

As Lenin would write in 1916, adopting the views of Hobson and Hilferding a decade earlier, imperialism was ‘The Highest Stage of Capitalism’. The big banks were the driving force of the new imperialism. But that was because they were organically connected to heavy industrial capital and were enabling—i.e. financing—the latter’s Imperialist expansion. The big banks had assumed control of the big industrial companies and fostered the concentration of capital into monopolies. They then financed industrial expansion into colonial territories. But Lenin still held the view that finance was ‘subordinate to industrial capital’, albeit with a twist. Big banks had become big industrial capital but the forms of exploitation were still primarily production based. The Hilferding-Lenin view was in effect a view primarily of German banking and German industrial capital at the time. Independent forms of financial exploitation were not considered. The Marxist ‘finance capital is subordinate to industry capital’ view did not permit it.

Not all Marxists at the time held to the ‘subordinate’ view, however. In her book, The Accumulation of Capital, written shortly Hobson and Hilferding and before Lenin, Rosa Luxemburg addressed the subject of International Loans and lending by finance capital directly to the dominated state. The loans and bonds provided were made to finance the import of capital equipment by the local capitalists. “Though foreign loans are indispensable for the emancipation of the rising capitalist states, they are yet the surest ties by which the old capitalist states maintain their influence, exercise financial control, and exert pressure on the customs, foreign and commercial policies of the younger capitalist states.” Luxemburg here appears not to be thinking of the financial relations of an Imperialist state to a colony, but to another less developed or small capitalist state dependent on loans and credit from a more economically powerful imperialist cousin. Could the nature of the imperialist relationship differ with the development of the dominated state? Could more independent forms of financial exploitation characterize the imperialist-small capitalist state? Luxemburg raised indirectly some interesting questions that Hilferding and Lenin ignored.

The view that finance is subordinate to industrial capital became embedded in Marxist analyses of imperialism thereafter. John Smith’s recent attempt to update Imperialism analysis to the 21st century has been much heralded in US Marxist circles. The update, however, is more a case of ‘new wine in old bottles’. Smith’s book is wedded to the traditional Marxist tradition that Imperialism is about real goods and related services, and the analysis is virtually devoid of consideration of financial forms of imperialist exploitation.

Like the preceding bias toward reflective theories of Imperialism, where finance capital is subordinate to, or subsumed by, industrial capital, Smith dismisses any real independent role to finance as a driver of imperialism or determinant of capitalist crises in the 21st century. For Smith, industrial capital and exploitation of productive labor is still the driver of imperialism (as well as of capitalist crises). Finance is subordinate to this process, relegated to assisting capital in imperialist economies to engage in ‘predatory overseas expansion’, where it is compelled to go due to the development of monopoly capital, declining rates of investment, and falling rates of profit in real production in the Imperialist core. Finance in this (post-Marx) Hildferding-Leninist view is not a cause but a “symptom” and “side effect” of the 21st century “transformations in the sphere of production, in particular its global shift to low-wage countries”. This is the old version Marxist view that it is the exploitation of labor value in producing real goods that drives the financial side of capitalism. Commenting on the global financial crisis that began to emerge in 2007, and erupted in 2008-09, Smith succinctly summarizes his classical reflective theory view: “the crisis is ultimately rooted not in finance but in capitalist production,” that what may appear as a financial crisis, or financial forms of imperial exploitation, is but a reflection of more fundamental production forces.

Alternatives to Hilferding-Lenin

To be fair, not all contemporary Marxists agree that finance is just an enabler of Imperialist expansion and ultimately just the handmaiden of monopoly capital. A more open-minded view is David Harvey’s New Imperialism, a work that explores alternative explanations of mperialism beyond reflective theories of Imperialism. Harvey suggests perhaps finance capital and financial exploitation today represents a kind of late 20th century rapacious ‘primitive capitalist accumulation’ in the Marxist sense of that term. If so, then financial imperialism, as a process of primitive accumulation, can occur outside the basic capitalist labor exploitation process. In Marx’s analysis, primitive accumulation pre-dates basic capitalist exploitation, even as it may also coexist alongside the latter at the same time. That suggests that financial exploitation, and thus Financial Imperialism, may not be a mere extension or appendage of exploitation from production. It is not ‘reflexive’. Financial Imperialism may have a dynamic of its own, interacting with traditional production-based exploitation and Imperialism, but nonetheless represent a force of its own and driven by its own causal forces.
In yet another important challenge to the Hilferding-Lenin view of Imperialism, contemporary German Marxist economist, Michael Heinrich, concludes that “the relationship between financial markets and industrial production is not constant in either a quantitative of qualitative respect. This relationship can be different in different countries, and can also change in the course of capitalism development.” Heinrich specifically challenges the Hilferding-Lenin view that the merger of industrial and bank capital, creating ‘trusts’ and monopolies, leads to declining profits in the advanced economies, thereby forcing them to expand abroad in search of more profitable, cheap labor. That capitalist state in the advanced economies assists this expansion—thus Imperialist policies emerge. Imperialism is the economic necessity of monopoly capitalism. Industrial capital integrates finance, and mobilizes the state on its behalf, to offshore its capital to developing markets where wages are less and exploitation and profits thereby high. As Heinrich correctly notes, however, more money capital has been ‘exported’ between the advanced capitalist economies, than from the latter to emerging markets in the 20th century. Imperialism in Lenin’s time does not represent the ‘highest’ or ‘final’ stage. Heinrich suggests the need “to formulate a theory of Imperialism outside Lenin’s framework” as an important task. That would necessarily mean a perspective that breaks from the notion that Imperialism is not just about production nor finance just an appendage of production.

The reflective view of what drives Imperialist expansion and exploitation is not limited, however, to the Marxists. There is a long tradition in mainstream economics that attributes supply-side, or production forces, as the main determinant of growth, of capitalist crises, as well as of the dynamic toward imperialism. The most famous in this regard is perhaps Joseph Schumpeter. Another line of analysis is offered by the neo-Ricardian, Piero Sraffa, who viewed the financial system as a mere superstructure facilitating monopoly control of industry and directing it into regions of higher profitability, including presumably colonies and emerging market economies. There is no lack of variations on the theme that it is the production of goods—and more specifically the slowing of that investment and production and therefore profitability from traditional capitalist production—that drives capitalism inherently toward seeking greater profitability by imperialist expansion. That expansion is what enables capitalism to maintain its profitability and growth.

That the forces underlying capitalism drive it toward extracting wealth from external regions is not the question. Imperialist expansion has always sought colonies and protectorates, or to make other regions dependent upon it. It has—and continues to this day—to exploit and extract wealth by means of producing with lower cost labor outside its ‘core’, by manipulating the terms of trade for exports and imports exchanges with the regions into which it expands, by stripping ownership of land from the indigenous inhabitants and then charging them land rent to use their own land, by theft of natural resources, and by imposing taxes on the indigenous populations to pay for the costs of the imperialists’ policing them. These are all historic forms of exploitation, all of which still continue today to some degree in various places globally.

Classical 19th century British Imperialism extracted wealth by means of production exploitation, commercial-trade, and all the five basic means noted above. It imposed political structures to ensure the continuation of the wealth extraction, including crown colonies, lesser colonies, protectorates, other dependency relationships, and even annexation in the case of Ireland and before that Scotland. The British organized low wage cost production of goods exported back to Britain and resold at higher prices there or re-exported. It manipulated its currency and terms of trade to ensure profit from goods imported to the colony as well. Its banks and currency became the institutions of the colony. Access to other currencies and banks was not allowed. Monopoly of credit sources allowed British banks to extract rentier profits from in-country investment lending and trade credits. They obtained direct ownership of the prime agricultural and mining lands of the colony. They preferred and promoted highly intensive and low cost labor production. Production and trade was structured to allow only those goods that allowed Britain investors the greatest profits, and prohibited production and trade that might compete with Britain’s home production. But the colonial system was inefficient, in the sense that was costly to administer. The cost of administration was imposed on the local country in part, but also on the British taxpayer.

Twentieth century US Imperialism proved a more efficient system. It avoided direct, and even indirect, political control. State legislatures, governments, and bureaucracies were locally elected or selected by local elites. There were few direct costs of administration. The local elites were given a bigger share of the exploitation pie, as joint production and investment partnerships in production and trade were established with local capitalists as ‘passive’ minority partners who enjoyed the economic returns without the management role. Only when their populace rebelled did the US provide military assistance, covertly or overtly, either from afar or from within as the US set up hundreds of military bases globally throughout its sphere of economic interests. The US and local militaries were tightly integrated, as the US trained local officer ranks, and even local police. Security intelligence was provided by the US at no cost. The offspring of the local elites were allowed to enter private US higher education establishments and thereby favorably socialized toward US interests and cooperation. Foreign aid from the US ended up in the hands of local elites as a form of windfall payment for cooperation. US sales and provision of military hardware to the local elites provided built-in ‘kickback’ payment schemes to the leading politicians and senior military ranks of the local elites. Local military forces became mere appendages of the US military, willing to engage in coups d’etat when necessary to tame local elites that might stray from the economic arrangements favoring more local economic independence beyond that permitted by US interests.

US multinational corporations were the primary institution of economic dominance. They provided critical tax revenues to the local government, employment to a share of the local workforce, and financial credits from US globally banking interests. The US also controlled the dominated states’ economies through a series of new international institutions established in the post-1945 period. These included the International Monetary Fund, established to address local management of currency and export-import flows when they became unbalanced; the World Bank, which provided funding for infrastructure project development; and the World Trade Organization and free trade agreements—bilateral or regional—which enabled selective access to US markets in exchange for unrestricted US corporate foreign direct investment into dominated state economies, financed by US financial interests. These investment and trade arrangements were tied together by the primacy of the US currency, the dollar, as the only acceptable trade currency in financial and goods exchanges between the US and the local economy.

This new ‘form’ of economic imperialism—a system of political dominance sometimes referred to as ‘neo-colonialism—was a far more efficient and profitable (for US capitalists and local capitalist elites as well) system of exploitation and wealth extraction than the 19th century British system of more direct imperial and colonial rule. And within it were the seeds of yet a new form of imperialism based on financial exploitation. As the US economy evolved toward a more financialized system after 1980, the system of imperial dominance associated with it began to evolve as well. Imperialism began to rely increasingly on forms of financial exploitation, while not completely abandoning the more traditional production and commerce forms of wealth extraction.

The question is: What are the new forms of imperialist exploitation developed in recent decades? Are new ways of extracting wealth on a national scale emerging in the 21st century? Are the new forms sufficiently widespread, and have they become sufficiently dominant as the primary method of exploitation and wealth extraction, to enable the argument that a new form of financial imperialism has been emerging? If so, what are the methods of finance-based wealth extraction, and the associated political structures enabling it? If what is occurring is not colonialization in the sense of a ‘crown colony’ or even dependent ‘neo-colony’, and if not a political protectorate or outright annexation, what is it, then?

These queries raise the point directly relevant to our current analysis: to what extent does Greece and its continuing debt crises represent a case example of a new financial imperialism emerging?

Greece as a Case Example of Financial Imperialism

There are five basic ways financial imperialism exploits an economy—i.e. functions to extract wealth from the exploited economy—in this case Greece.
• Private sector interest charges for financing private production or commerce
• State to State debt aggregation and ‘interest on interest’ wealth extraction
• Privatization and sale of public assets at fire sale prices plus subsequent income stream diversion from the private acquisition of the public assets
• Foreign investor speculative manipulation of government bonds
• Foreign investor speculation on stock, derivatives, and other financial securities’ as a result of price volatility precipitated by the debt crisis
The first example represents financial exploitation related to financing of private production and trade. It is associated with traditional enterprise-to-enterprise, private sector economic relations where interest is charged on credit extended for production or trade. This occurs under general economic conditions, however, unrelated to debt crises. The remaining four ways represent financial exploitation enable by State to State economic relations and unrelated to financing private production or trading of goods.

One such form of financial exploitation involves state-to-state institutions, public sector economic relations where interest is charged on government (sovereign) debt and compounded as additional debt is added to make payments on initial debt.

Another involves financial exploitation via the privatization and sale of public assets—i.e. ports, utilities, public transport systems, etc.—of the dominated State, often at firesale’ or below market prices. Privatization is mandated as part of austerity measures dictated by the imperialist state.as a precondition for refinancing government debt. This too involves State to State economic relations.
Yet a third example of financial exploitation also involving States occurs with private sector investor speculation on sovereign (Greek government) bonds that experience price volatility during debt crises. State involvement involvement occurs in the form of government bonds as the vehicle of financial speculation.

Even more indirect case, but nonetheless still involving State-State relations indirectly, is private investor speculation in private financial asset markets like stocks, futures and options on commodities, derivatives based on sovereign bonds, and so on, associated with the dominated State. This still involves State to State relations, in that the investor speculation is a consequence of the economic instability caused by the State-State debt negotiations.

Finance capitalists ‘capitalize’ on the debt crises that create price volatility of financial securities, making speculative bets on the financial securities’ volatility (and in the process contributing to that volatility) in order to reap a financial gain from changes in financial asset prices. And they do this not just with sovereign bonds, but with stocks, futures options, commodities, and other financial securities.

All the examples—i.e. interest on government debt, returns from firesale prices of public assets, investor speculative gains on sovereign bonds, as well as from financial securities’ price volatility caused by the crisis—represent pure financial wealth extraction. That is, financial exploitation separate from wealth extraction from financing private production. . . All represents ‘money made from money’, in contrast to money made from financing the production or trading of real assets.

Before describing in more detail each instance, and how they occur in Greece, here are some general comments on financial imperialism.

Financial Imperialism does not displace other traditional forms of imperialist exploitation based on production, commerce, or any others of the five methods noted previously. Financial imperialism adds to, and therefore intensifies, traditional exploitation. Financial forms of imperialism may function as an integral part of the traditional forms. But they may also arise and exploit independent of traditional forms as well—as in the case of financial asset speculation and even privatization of real public assets.

In its most basic sense, finance is about extending money and credit in the expectation of receiving a greater value of money and credit in return. Debt is the equivalent expression of credit. The lender extends credit and the borrower accepts it, thus incurring a debt equal to the credit. The total debt to be repaid is always more than the original credit-debt extended, as ‘interest’ on the debt is added to the initial value of the extended credit. The residual difference between the total debt and principal is the interest charged on the debt.

Private Sector Interest Transfer

In its basic form, financial imperialism and exploitation is about interest flows that originate from the production and commerce of goods. That is, interest payments from credit extended for production and trade.

A foreign bank or financial institution or (jointly owned or foreign) business engaging in foreign direct investment (FDI) into Greece, extends credit to a Greek business to build and/or operate production facilities. The bank or financial institution or foreign business then eventually repaid the loan (principal) plus a rate of interest. The interest charge is ultimately paid for by the Greek worker-producer and/or Greek consumer, as the debt is factored into the wage paid the worker or added onto the price of the product. If the full debt in the in form of interest is not retrievable by shifting its interest cost to wages or prices, then the industrial capitalist (Greek and/or foreign) may write off the interest cost as a deduction from taxes. The Greek taxpayer thus assumes the residual burden of interest. Or, all the above occur—the worker, the consumer, and the taxpayer all pay part of the interest on a basic, private sector financial investment. In private financial exploitation, the imperialist multinational corporation often functions as a monopolist or oligopolist, so it is easily able to shift the burden of interest payment to the local workforce, or to the market price of its product, or to the foreign or Greek taxpayer.

What this process represents is a private sector set of economic relationships, not state to state relationships. It represents private sector credit, debt and interest payment. It is a traditional form of financial exploitation involving production and commerce. It is not yet state-to-state financial exploitation, which is an essential feature of the new financial imperialism.

As it concerns interest payments on credit extended to production and commerce, the flow of payments is quite simple: the enterprise receiving the credit repays the bank on a set schedule of principal and interest payments with certain associated terms and conditions. If the bank is not a Greek bank, the interest payment flows from Greece to the core Euro bank. The interest payment may be to a jointly owned Greek bank, part of which is then redistributed in turn to the Euro bank by the Greek bank. This works until such time as a financial or economic crisis interrupts and prevents the interest payment being made by the enterprise and/or by the Greek bank to the core Euro bank. The latter now faces potential losses from defaulted loans to the enterprise and seeks to ensure the payments occur. Arrangements are pursued that permit the Greek government (or central bank) to provide funds to bail out the Greek enterprise or Greek bank so that it is able to continue to make its scheduled interest payments to the core bank.

Initially this is possible by the Greek government issuing bonds, the proceeds from which are used to bail out Greek banks and enterprises about to default, or defaulting in fact, on scheduled interest payments to Euro banks. But when the economic downturn is severe, as was it was in 2008-09, issuing government bonds may be difficult (or too expensive) and therefore the amount raised is insufficient to cover deficits and bailouts. Diverting government revenues from other sources from the Greek budget is an alternative. But the economic contraction’s severity makes it difficult to redistribute declining tax revenues to bail out Greek enterprises and banks facing default. Unable to sell sufficient bonds, or redistribute declining tax income internally in sufficient volume, to bail out its own Greek banks and enterprises—and itself also in need of more borrowing to cover deficits as its economy collapses from the crisis—the Greek government turned to borrowing from the only source then available to it as a member of the Eurozone: the Eurozone’s Troika institutions. The Troika was willing to lend to ensure Greek banks and businesses did not default on Euro bank and business loans But it was only willing to lend the minimum necessary—after Greece squeezed everything it could first from issuing its own bonds and raising taxes and cutting spending (i.e. austerity).

But the Eurozone as constructed in 2010 had no central fiscal authority, and poorly developed funds, from which Greece (and other periphery economies) could borrow. There was no contingency built into the Eurozone from its inception to handle such situations. ECB to national central bank rules limited the credit the ECB might lend Greece’s central bank. And government to government lending was just then being constructed ‘on the fly’ by the EC and poorly so. By 2012 it was still a cumbersome, bureaucratic and highly politicized process. The manner in which debt negotiations took place further exacerbated Greek government debt levels, as did austerity policies.
In summary, to ensure scheduled principal and interest payments established in the private sector prior to 2008, in the midst of the 2008-09 crisis that wasn’t of Greece’s making, led inevitably to Greek government borrowing from the Troika and its institutions. Private interest on private debt was thus offloaded onto government balance sheets as Greek banks and businesses were bailed out by Greek central bank and Greek government borrowing from the Troika. Private sector interest payments were ensured in the short run, but only by replicating the private payments as debt on Greek government balance sheets for which interest was also to be paid to the Troika. Private debt became government debt, and private interest payments to Euro banks and businesses became mirrored in Greek government debt and Greek interest payments to the Troika.

State to State Debt and Interest Aggregation and Transfer

Financial imperialism is not just a matter of a bank lending to a private enterprise, which eventually in turn repays principal and interest to the bank. That is the kind of financial exploitation that occurs at an enterprise or ‘micro’ level. In the case of financial imperialism, however, overlaid on this basic ‘micro’ relationship are complex ‘macro’ relationships: i.e. imperial state institutions lending to dependent governments; imperial central banks to governments and their central banks; central banks repayments to imperial institutions; dependent governments to all the above; and so on.

Credit, debt, and interest have always been an element of traditional forms of imperialism based on production and commerce (trade). What’s fundamentally different in the case of financial imperialism is that the interest charged is not just on the principal credit extended for the production and transport of a particular private good or service. Interest ends up being charged on interest, as debt is incurred to pay for previous debt. With financial imperialism the primary institution is no longer just the enterprise or the private bank that funds the enterprise goods production and/or trade. Financial imperialism involves state-to-state exchange and interest payments. In the case of Greek debt, the role of the imperial state is played by the entire structure of Eurozone Troika institutions—the European Commission, the European Central Bank (ECB), the IMF, the various funds established for lending by the Troika to Eurozone member governments and their central banks, and ultimately the national central banks and governments that determine the policies of the Troika itself.

In 21st century financial imperialism the imperialist state/structure plays the role of aggregator of private bank credit, which it then extends as its own credit (Troika) to the dominated state’s (Greece) institutions. Greece incurs Troika credit as debt, and then in turn extends the credit to its banks and non-bank enterprises. These private enterprises, bank and non-bank, may include foreign enterprises and banks doing business in the country as joint enterprises or as solely owned local enterprises and banks. The loans and credits provided are then recycled as private payments to enterprises and banks in the imperialist economy beyond Greece. Thus the private money as private credit is recycled completely—from imperialist banks, investors and enterprises through Imperialist state institutions to Greek government institutions, to Greece’s private sector, and from there back to the originating ‘core’ Euro banks and investors.
When a major financial crash and extended recession occur, this financial flow is seriously disrupted. Greece’s private sector—banks and business—cannot make payments on their private debt and default. Their default then threatens losses for the originating creditors in the imperialist economy. If the banks and investors in the imperial ‘core’ are also experiencing potential or actual default—as was the case in 2008-09 in the Eurozone banking core and then again during the 2011-2013 second recession—the need to ensure debt repayment from the local debtors by some alternative means becomes especially important. In addition, if the northern core Eurozone banks, already in trouble, are deeply invested in the major Greek banks, then the bailout of the Greek banks is necessary as part of a bailout of the Eurozone core banks.

But if both Euro core and Greek banks are simultaneously in trouble as they were in 2008-09, from where would the payments come? The Greek private sector debt would have to be assumed by the government sector in order to make the payments, in effect transferring Greek private debt to the balance sheets of government institutions. This is how the Greek debt run-up originated—as a transfer of private debt to government balance sheets. But it was only the beginning of the Greek government’s debt buildup. As was the case with all governments during the 2008-09 crisis, the deep recession meant a collapse of tax revenues just as social payments to support household spending and small business rose simultaneously. This meant government deficits escalated and therefore government debt. Overlaid on these two important sources of rising Greek government debt, were the austerity measures imposed by the Troika from 2010 onward. The double dip recession of 2011-13 in the Eurozone further exacerbated Greek deficits and austerity conditions.

How the Troika handled the debt negotiations also contributed significantly to the buildup of Greek government debt. The Troika insisted repeatedly on Greece raising debt (issuing bonds) in private markets first, before lending to it, even though, due to the crises, the interest on the new bonds sold on the private market rose to extreme levels. Global shadow bank (hedge funds, etc.) speculators during each crisis drove up the bond rates further, thus further increasing Greek debt. There were additional factors as well. By delaying providing loans to Greece as the crises each deteriorated the Greek economy—which the Troika did on each of the three occasions—the Troika in effect allowed the debt totals to rise further than otherwise might have been the case. But even this was not all. As the debt crises and negotiations ran their course, withdrawal of deposits by businesses and wealthy investors from Greek banks required even more loans from the Troika to re-stabilize (i.e. recapitalize) Greece’s private banks. This meant the Greek government had to borrow even more from the Troika to bail out its own banking system, after the Troika purposely permitted—and actually encouraged—it to crash during debt negotiations as a way to pressure Greece to accept Troika terms.

So Greek government total debt—and rising interest payments on the escalating debt—is attributable to six basic causes:

• transfer of private sector debt to government balance sheets,
• rise of government deficits associated with the 2008-09 crash and subsequent double dip Euro recession of 2011-2013,
• excessive speculation on Greek government bonds by private investors and vulture funds,
• ECB action during crises that ensured excessive Greek bank withdrawals and capital flight requiring additional ECB lending to Greece’s central bank to recapitalize Greece’s banking system,
• austerity policies of the Troika that drove Greece into depression, raising deficits and debt
• Troika insistence that debt be piled onto debt, in lieu of debt relief, to ensure Greece would make payments on old debt with new debt.

The rising interest on the Greek government debt is paid from Greek national production. Just as in basic financial exploitation, where the worker-consumer-taxpayer ultimately bears the burden of payment of interest on private debt, government debt and interest is fundamentally the same—except that payment occurs not on an individual enterprise level, but at the level of the entire economy.
The imperialist state structure (Troika) dictates and arranges the terms of the payment on behalf of the banking and private investor interests outside Greece. The Greek state is the ‘middleman’ in the process, implementing the austerity and other measures from which wealth is extracted from Greece’s economy and sent as interest and principal on debt repayments to the Troika. The Troika in turn redistributes the payments to the private bankers, investors and businesses from which it originally raised its bailout funds that it has loaned to Greece.

That is why, as the EMST study showed and concluded, 95% of the Greek government’s debt payments ultimately end up in the private sector in the Eurozone outside Greece—i.e. in the hands of Eurozone bankers and investors. Of the 215.9 billion euros in credit extended by the Troika to Greece in the 2010 and 2012 agreements alone, 86.9 billion of principal was repaid but 119.3 billion was repaid in interest, to private investors or to recapitalize Greece’s banks. Only 9.7 billion ended up in the Greek economy. What appears as a state-to-state structure transfer of wealth—from Greece to the Troika and its institutions— is really in essence a transfer of wealth from the Greek society and economy in general to private interests outside Greece in the Eurozone.

The recycling of the interest payments occurs through both Greece and the Troika—that function together as interest aggregators from Greece to private banks and investors outside Greece. That interest aggregation and distribution process for each of the Troika institutions occurs in brief as follows:

The EC: The Greek government makes interest payments on loan debt incurred from the EC (EFSF, ESM, etc.). The EC raises the loans from its constituent country members, who raise it from their national banks and investors. Greek debt payments to the EC flow back to their respective member governments and in turn back to the private banks and investors.

The ECB: Greece’s central bank repays ECB loans, which then are redeposited to its member central banks’ accounts with the ECB. The funds ultimately contribute to ECB purchases of mostly German and core government bonds and now corporate bonds as well. The money ultimately is redistributed to the corporate sector via QE and other pre-QE liquidity injection measures by the ECB
The IMF: Greek government payments to the IMF are then re-loaned by the IMF to other economies in crisis, which eventually redistribute it largely to western banks who participate as partners in all the IMF bailouts. Example: Ukraine IMF loans from 2005 to 2014 that went to repay loans from participating western banks and investors.

But the money used to repay the Greek government debt and interest must come from somewhere. Part appears to come from new debt incurred in order to be able to repay old. But the money to repay that new debt on old interest must also come from somewhere ultimately. Where it comes from is the aggregate Greek economy and society, from Greek production and commerce on a national (not private enterprise) scale, organized through the medium of Troika-Greece negotiated austerity policies and programs.

In Financial Imperialism, therefore, the extraction of wealth in the form of aggregate interest on debt is arranged through the medium of the state itself, as well as at the level of the individual enterprise. It is becoming one of financial imperialism’s defining characteristics in the 21st century, emerging in the most vulnerable smaller economies, which are being consolidated into new free trade-single currency-banking union transnational capitalist economies like the Eurozone, European Union, TPP, NAFTA-CAFTA, and scores of others that exist or are in development worldwide.

Debt has become a major tool for extracting profit in the form of interest for globalized finance capital in the 21st century. The interest on ever-rising debt from loans and bonds and other securities paid to the Imperialist state are extracted from the entire Greek population—not just on an enterprise basis—though of course forms of interest as payment on credit extended to private enterprise continue. But superimposed on interest from the traditional production or trade exploitation, where goods are involved, is not just interest, but interest on interest due to rising levels of government debt and inability to make payments.

To pay principal and interest on its escalating debt, the Greek government is required to extract income and value from the Greek people by means of austerity: reducing wages, pensions, benefits and services while raising taxes. Greece must generate a sufficient increase in GDP to obtain tax payments with which to repay Troika and private debt. If GDP does not grow, which it cannot do in depression conditions, income taxes decline thus requiring raising of sales (VAT) and small property taxation. If sales taxes are insufficient to make debt payments, the Greek government must also cut spending. Spending cuts focus primarily on government employment and wages, pensions and health services, education and other social services. Labor market restructuring is often the means to reduce benefits and wages of government workers and thereby minimum wages and union-bargained wages and social security benefits for the rest of the private sector working class. When private sector jobs and wages in turn fall, the reduced income for working class Greeks becomes Greek government ‘savings’ that are available for redistribution to the Troika and private investors in the form of debt payments. Greeks must give up a greater share of their wages in the form of taxes to repay debt which they had not personally incurred. As austerity impacts the economy, they then become jobless due to the need to repay debt, or have their ‘deferred wages’ (pensions, health services, social security) reduced, the savings from which are redistributed to the Troika, and so on. The cumulative result is a reduction in economy-wide wage and other earned income that is extracted by the Greek government and paid to the Troika and private investors as debt principal and interest. Through this process of state intermediation, debt and the suffering and reduction in well being it entails is spread to the entire population, irrespective of their role in incurring it.

Financial Imperialism from Privatization of Public Assets

If tax increases and Greek government spending reductions are insufficient to make debt payments, then the Greek government is forced by the Troika to raise additional funds by selling public goods and investment—i.e. privatization of Greek public assets—utilities, railroad and urban transport systems, airports and seaports, etc. Privatization results in a double form of financial exploitation: The Greek government sells the public assets to private investors, most of whom are German, British, Chinese and other investor groups, at a below market price, often at what are called ‘fire sale’ prices. By setting prices well below market value, the investors are thus subsidized by the Greek government. The investors make a financial profit in various ways. They may hold the public asset and then resell it in whole or part at a market price equal or above the asset’s fire sale price. While awaiting the market price of the asset to recover, the investor reaps a stream of income that may be produced by the public asset as well. For example, purchased Greek railroad systems, electricity systems, or ports produce an income stream, which the private investor enjoys in the interim before resale. The asset may be still further exploited by investors’ issuing new bonds on the asset. Or investors may reap a financial windfall through government provision of low cost, subsidized loans to purchase the public asset; or loan guarantees, which the government subsequently pays if the income stream from the privatization does not reach some contractually agreed upon level. Privatization thus creates multiple ways to exploit—i.e. to extract wealth—financially, once the government is on the hook for debt.

Foreign Investor Speculation on Greek Financial Asset Price Volatility

Financial imperialism includes generating interest and money flows from buying and selling government financial securities. This includes professional investors’ speculation in Greek government bonds, notes, financial derivatives tied to bonds (credit default and interest rate swaps), and residential foreclosures and mortgage debt acquisition at below market prices, and even stock price speculation as Greece’s stock market swings widely (contracts) in the run-up to the crisis and after a debt deal is signed (expands).

The periodic debt crises provide great opportunity for speculators and professional investors (mostly in the EU but globally and among Greek investors as well) to realize significant capital gains due to the volatility induced by the crisis. This is not interest on debt—private enterprise or state to state aggregated. There is no austerity required to pay for the financial gains. But it is financial exploitation of the crisis based on the debt nonetheless, a kind of spin-off affording financial exploitation.

As the Greek debt rises, that precipitates an awareness of crisis, and as crisis negotiations begin between the Troika and Greek government, investors dump Greek bonds. Bond prices fall and Greek bond interest rates escalate just as the Greek government attempts to raise significant additional revenue from bonds in order to deal with the debt crisis (since the ECB and Troika insist the government raise funds from private markets as much as possible before