Peak Western Extractive Capitalism

Destroying The Foundations of Western Power

This reality is very well represented by a cover of the Industrial Worker magazine that I saw recently on Naked Capitalism, reflecting the US economy of 1911. The overhead of the ruling (“we rule you”) and governing (“we fool you” and “we shoot you”) classes is crushing the very base that the ruling class pyramid of power relies upon.

In 1911, the US had only just “closed the frontier” and taken the Philippines as a colony, so it had many decades worth of new resources to drive economic growth and profits. WW1 and WW2 then allowed the US to act as an offshore banker and supplier of weapons while enjoying the protection of the Atlantic and Pacific oceans. Relatively few Americans died in the two wars, while US productive capacity multiplied as the European, Russians, Chinese and Japanese productive capacities were devastated. At the end of WW2 the US stood as the true global hegemon, whose capitalist elite ruling class could exploit the world outside the contained communist enclaves of the Warsaw Pact, China and North Korea.

This arrangement started to fall apart from the 1970s onwards as the previously devastated powers regained their productive capacities and even challenged the Americans in their home markets, as with the Japanese in cars and microchips. The response was a rejection of the New Deal and an orchestrated multi-decade return to the levels of domestic exploitation of 1911, with the decline of US power having one last remission with the collapse of the Soviet Union. But the frontier has now long been closed, the nation populated with wave after wave of immigrants, and the Other 7 Billion are now increasingly throwing off the shackles of the West. In addition, the post-9/11 wars turned out to be expensive busts and took the US focus away from the rise of China. Now the US faces an allied Russia, Iran, China, Iraq, Syria, North Korea and the Stans on the Eurasian continent, with the ASEAN nations increasingly unwilling to be exploited.

The case of Indonesia, which has increasingly banned the export of unprocessed metals to drive industrialization, is a case in point. The country has banned the export of unprocessed nickel, and since 2014 has increased the value of its nickel (needed for the production of stainless steel) based export 20 times! Now it has also banned the export of unprocessed bauxite (the base ore for aluminium).

The tendency to gain an increasing share of the value of a nation’s minerals has recently moved to Africa, with the new Nigerien government terminating the agreements with France whereby France paid pennies on the dollar for Niger’s resources.

Of course, the Western media and institutions scream and wail about these changes as their owners see their extractive profiteering activities restricted. With such foreign profiteering now becoming increasingly restricted, and Chinese and other corporations providing increasing levels of competition in intermediary and finished goods, the US capitalist elite have intensified their state-looting and profiteering activities within the US.

This US (and Western) Military Industrial Complex (MIC) is the premier state-looting and profiteering sector, driven by a revolving door between the private-sector MIC and the state that is supposed to oversee it. The result is a MIC focused on profit-extraction state looting, rather than the production of efficient and effective weaponry and military echelons, together with the massive bribery of foreign officials in nations such as Saudi Arabia; with some of that massive flow of bribe money flowing back to Western state officials. When it comes to the foreign policy elite, van Apeldoorn and de Graaff have documented the revolving door between oligarch and MIC funded think tanks and foundations, and state officials here, here, here and here. Endless foreign wars that enrich the few and serve to open up new geographies of exploitation are always on the agenda.

The vast profiteering during the Iraq War, and the post-911 US Wars, where a very significant portion of the US$6 trillion plus spent simply went from the Pentagon to the US MIC. As is happening with all of the military “aid” to Ukraine and Israel.

With a military procurement process that produces weapons optimized for MIC profit rather than efficiency and effectiveness, components are sourced irrespective of the nature of the provider. The result is that the United States is now in the position that it needs supplies from China to fight China! As the CEO of Raytheon explained here, and

from 2005 to 2020, the number of Chinese suppliers in the U.S. defense-industrial supply chain has quadrupled. And third, between 2014 and 2022, American dependence on Chinese electronics increased by 600 percent

As detailed here. The same report found that:

U.S. domestic production capacity is a shriveled shadow of its former self. Crucial categories of industry for U.S. national defense are no longer built in any of the 50 states. With just 25 well-constructed attacks, using any of a variety of means, an adversarial military planner could cripple much of America’s manufacturing apparatus for producing advanced weapons

The extractive capitalism that has overwhelmed the US has resulted in a US military only good for fighting weak nations and goat herders, and even then it has problems. The Global War on Terror (GWOT) was a wonderful profit-enhancing self-licking ice cream, but after more than two decades of easy pickings the US MIC is in no shape for a real peer-to-peer conflict. The US capitalist elite has undermined its own military power.

Due to this multi-decade undermining even two years from now, according to CNN the US plus Europe will be unable to produce more than half the shells that Russia currently produces; a production level that is three times the level of US and Europe combined. In addition, the US and Europe have greatly depleted their current shell stockpile to supply Ukraine; a stockpile that will have to be rebuilt. The Duran discuss this reality here:

The US think-tank Centre for Strategic and International Studies states that in comparison to China:

Overall, the U.S. defense industrial ecosystem lacks the capacity, responsiveness, flexibility, and surge capability to meet the U.S. military’s production and warfighting needs. Unless there are urgent changes, the United States risks weakening deterrence and undermining its warfighting capabilities. China is heavily investing in munitions and acquiring high-end weapons systems and equipment five to six times faster than the United States. China is also the world’s largest shipbuilder and has a shipbuilding capacity that is roughly 230 times larger than the United States. One of China’s large shipyards, such as Jiangnan Shipyard, has more capacity than all U.S. shipyards combined.

Here is the full report, which lists the main challenges as:

First, the Chinese defense industrial base is increasingly on a wartime footing and, in some areas, outpacing the U.S. defense industrial base.

Second, the U.S. defense industrial base continues to face a range of production challenges, including a lack of urgency in revitalizing the defense industrial ecosystem.

Third, the United States has not sufficiently leveraged its relationships with allies and partners, though it has taken some steps through such arrangements as the Australia–United Kingdom–United States (AUKUS) partnership.

The first point is an utter lie, as China still spends only 2% of GDP on its defence industry; that amount keeps rapidly growing because the Chinese economy keeps rapidly growing. Nowhere is the utterly ineffective and inefficient nature of the state-looting extractive capitalist nature of the US MIC, nor the corporate offshoring of so many capabilities required by the US MIC, addressed. This would be expected of course, as the writers of the report must not go against the interests of those providing their pay checks; which includes defence contractors and US and foreign state security and military functions. So instead it recommends a massive expansion of US defence spending, and therefore a massive expansion of the trough of money for the extractive capitalist pigs. If that path is taken the US will mimic the Soviet Union of the 1980s, with increasing shares of GDP spent on the military to keep up with a China growing more than twice as fast. Especially when so much of the remaining US GDP reflects purely capitalist ruling class extractive overhead.

The utterly corrupt way in which SpaceX was given the contract for the NASA moon landing project, and the ridiculousness of having the US NASA moon project reliant upon two oligarchs with no previous experience in space exploration, is detailed below. The NASA executive who individually made the decision to award the contract to SpaceX resigned within weeks and then joined SpaceX within a year. The company is a laughably incompetent contractor, as detailed below. With its latest massively overdue launch SpaceX did manage to get their big rocket out of the Earth’s atmosphere without blowing up, but then it blew up on the return journey back to Earth.

Do those three SpaceX “experts” trying to establish whether or not the “starship” had failed re-entry (it had) instil the same kind of confidence as the NASA Apollo scientists? It took only 9 years from JFK’s “moon” speech to land a man on the moon in the 1960s. Such a wonderful expenditure of government money, if you are a rich and spoilt oligarch of course! China and Russia have kept with the old model of the state managing space development, which may turn out to be much more cost effective than the West. With the state tortoise ending up beating the private oligarch-driven-project hares.

The US mission to the moon is an example of the Public Private Partnership (PPP) con where the state takes all the risk and the private partners take wonderful profits; many times at a greater cost than if the state had just done the work themselves. Here is a 4 minute take on why public private partnerships are extractive and creative accounting scams, which are hopefully coming to an end.

Of course, the new Conservative leader of the British Labour Party is all in for PPPs, just like his corrupt war criminal predecessor Blair, so once again “doing the right thing” will be sacrificed to pump as much of the state coffers into oligarchic hands. Below, another quick explanation of why PPPs don’t work, pointing to this very informative document: “Public services are massive pools of potential corporate profit, and PPPs serve to access them. The ‘clients’ are captive, the services are often a monopoly.”

And of course, the institutional tools of the extractive oligarchs such as the World Bank and the IMF extol the use of these state-looting partnerships. A short video on some of the PPP disasters in the US:

It will also be expected that with a Trump presidency the benefits of the “private sector” will be extolled while state institutions will be even more derided. He will be happy to open up the public coffers and turn them into an even bigger trough for the corporate pigs. MAGA is really about making the US domestically-oriented segment of the capitalist ruling class great again. In the UK PPP’s tend to be called Private Finance Initiatives, but they are still exactly the same state-looting scams no matter what they are called:

As I write this my own province of Ontario in Canada is pushing private sector “solutions” while intentionally underfunding the highly efficient public health service that is supported by the vast majority of Canadians.

Another profiteering gig is to create large monopolies or oligopolies where a single corporation, or a group of corporations, can fix prices to make much higher profits than they would in a competitive market; in 1911 these were called “Trusts”.

From the 1980s onwards, the anti-trust regulations and institutions of the US have been gutted allowing a massive level of corporate consolidation and monopolization in the US. The gutting of the laws that limited the size and scope of US financial institutions also exacerbated this, as the financial sector was unleashed upon the productive sectors of the economy in its search for looting and monopoly profits that could be extracted. With deep pockets to fund the required corporate consolidations and to get Americans into as much debt as possible. Aided by free government guarantee programs for such things as emergency liquidity injections, mortgage loans and the massive indebtedness of young people with student loans (which in the US cannot be discharged through bankruptcy).

Even the elite private universities operate a cozy cartel and use their endowment funds like a hedge fund while enjoying non-profit status and charging horrendously high tuition fees spent as much on administrators as educators. In the 1980s university endowment funds actually helped found the incredibly corrosive private equity business that loots companies for the capitalist elites, with no thought for the destruction of national productive capabilities.

In the 1980s many products and services were much cheaper in the US than in Europe, but after four decades of US corporate consolidation many of those products and services are now appreciably more expensive in the US than in Europe.

These massive corporate consolidations can also act as monopsonies to squeeze their suppliers and staff, as with Walmart with respect to their suppliers and the agri-conglomerates with respect to farmers. Walmart was a very major driver in sourcing from China to reduce costs, gutting US domestic suppliers. Now Amazon has taken the exploitation of workers, the offshoring of jobs, and the abuse of monopoly and monopsony power to new depths.

Amazon’s long term plan was always to drive others out of business to create monopoly positions that could then be exploited:

Of course, the predominantly privatized US health sick care system is utterly monopolized in order to extract as much profits as possible. The pharmaceutical lobbyists even got the government to enact laws that stop the US state from bargaining down drug prices! Sick care spending is 17% of the US GDP, representing a massive corporate behemoth that has bought and paid for enough politicians and state managers to make it well nigh impossible to implement an effective single-payer system that would crush their profits. German healthcare spending represents 12% of GDP, France 9%, Japan 11% (all of which have better health outcomes than the US); if the US was able to implement a single-payer healthcare system at the average cost of these three nations as a percentage of GDP, just over 10%, the reduction in private profits would be quite colossal - 7% of GDP!

The US sick care system is so awful that even with the expenditure of 17% of US GDP it is outperformed by the healthcare system of Cuba when it comes to such measures as infant mortality. Even Forbes had to characterize the Cuban system as “Cuba's Surprisingly Cost-Effective Healthcare”. Noting that the US has a sick care system while Cuba has a healthcare system, my italics:

One of the key differences between our [the US] health care system and that of Cuba is that the US, as many western countries, focuses on treating disease, rather than preventive medicine. This is an enormously profitable system for manufacturers of diagnostic and radiologic tests, as well as for expensive medicines. In contrast, Cuba’s health system is strongly focused on prevention, using low-tech means extraordinarily effectively. Education is a priority, and there is almost universal literacy. Health and sexual education are promoted; contraceptives are free. Universal health care is free, and everyone has a family physician and nurse.

The Cuban system performs amazingly well given the relative costs (and remember that Cuba’s GDP per capita is much lower than the US one, so 10% of Cuban GDP represents much, much less per capita in dollar terms than 17.9% of US GDP.

The US ranks 3^rd in health care expenditures, spending 17.9% of its GDP  on health (2011). In contrast, Cuba only spent 10% of its GDP, putting it on par with Norway, Sweden, the United Kingdom, and Canada.

What does the US gain for its vastly greater financial investment? Not so much, it seems. Infant mortality is lower in Cuba and the under 5 year old mortality rate is quite low. Life expectancy is almost identical in the two countries. This is achieved despite huge disparities in wealth. (The only area where mortality is significantly higher in Cuba is that of maternal mortality).

And now private equity funds are getting heavily involved in the US sick care system to make it even worse and even more expensive, while also making it less effective; as with this case with an autism clinic taken over by private equity:

“Blackstone bought CARD in 2018. By 2023 the autism services company had shuttered 100 locations and declared bankruptcy.”

This is the standard looting behaviour of private equity, load the company full of debt and extract as much money as possible through outsized fees and dividends, and then dump the carcass (including all that debt) into bankruptcy and move on to the next corporate victim. Autism cases have soared in the US in the past decades, creating a nice juicy opportunity for oligarch wealth extraction. The intensive therapy required is covered by private health insurance and Medicaid in all 50 states, with a cost of up to US$60,000 per year per child, an alluring target for private equity. Thankfully for the customers of CARD, the founder bought back most of it recently so it may rise from the private equity ashes.

Investment vehicles such as Blackstone allow for the capitalist rich to combine their financial resources to buy up huge chunks of the US economy, in effect acting as a joint capitalist ruling class Trust rather than just representing the interests of a single oligarch. Blackstone has Assets Under Management of US$1 trillion, but this is dwarfed by BlackRock (US$10 trillion), Vanguard (US$7.7 trillion), Fidelity (US$4.5 trillion), and State Street (US$3.7 trillion). There is a very small group that runs these financial vehicles for the US rich (with many being part of the US oligarchy) and they tend to have gone to the same schools, the same universities, worked their way up in many of the same firms, and live in the same areas. The possibility of collusion of a type which would be incredibly hard to detect is extremely high. But even if it was, the so-called financial regulators are full of people who would be so happy to jump ship to any one of these companies; better to not piss-off the prospective future bosses. Also, many of these financiers are appointed to leading US state positions, such as Treasury Secretary; as with the ex-head of Goldman Sachs in the run up to the 2008 GFC. The same for Steve Mnuchin, who was the Treasury Secretary under Trump, the ex-CEO of OneWest Bank that would have been prosecuted in California if the DA in charge hadn’t overruled her own staff. That DA was Kamala Harris who was the only 2016 Senate Democratic Nominee to get campaign cash from Mnuchin. She understands who the officers of state truly serve.

As Michael Hudson has noted, the US has moved from being run be a productive capitalist ruling class to an extractive one, making up for the falling rates of profits through increasing levels of state-looting and monopolization. The increasing level of corporate consolidation also drives out smaller companies and creates corporate behemoths that can use their resources to co-opt their own regulators and the state as a whole; greatly aided by recent US Supreme Court rulings with respect to political campaign finances.

The result is that much of what is counted as US GDP in fact represents an unearned oligarchic tax upon the American people, with the capitalist elite extraction only serving to weaken the basis of the US state power that that very elite relies upon. In the immediate post-war years the US state could efficiently build the massive inter-state road system, nowadays it is not even capable of building a few hundred miles of high speed rail. China, and even Russia, are bounding past the US as they build or rebuild (in the case of Russia) the state strengths and productive capacities required to maintain and grow national power; while delivering real increases in the quality of life to the vast majority of their populations.

The US elite have become so desperate they have now sacrificed their European allies vassals to keep the flow of profits going, with “anti-Russia” sanctions packages that damage Europe many times more than Russia (much higher energy prices and the loss of the Russian market), the protectionist US IRA subsidies and the banning of specific high-tech exports to China . Europe is being weakened just as China is moving up the value chain to directly attack European industrial strengths, such as car manufacturing and machine tools.

The US has already fallen, but the US capitalist elites are not fully cognizant or accepting of this reality, even as the debacle that was the Afghanistan retreat and the now the increasingly obvious defeat in Ukraine are provide unwelcome truths. And truly Making America Great Again would require the US capitalist elite to give up much of the unearned income, the rent in economic terms, that they extract from the US state and the rest of the US population (and increasingly from its vassals).