July 9, 2026
Prabhat Patnaik
There are at least two important economic aspects of the current structural crisis of capitalism. The first is the overall stagnation and increased unemployment with which world capitalism in its neoliberal phase has been confronted. The higher unemployment in many cases, such as in the United States, is camouflaged by a reduction in the work participation rate, but its reality is undeniable. The stagnation was manifest even before the pandemic: the decadal rate of growth of the world economy over the 2010s decade was lower than in any preceding decade since the Second World War.
Rising Share of Surplus and Ex Ante Overproduction
The reason for this stagnation lies in the very nature of neoliberal capitalism itself, which has seen a massive increase in income and wealth inequality within each country. Since capital, including finance, enjoys more or less free global mobility under the neoliberal regime, while workers remain confined to their respective countries (except when specifically permitted to migrate), workers in advanced countries in effect compete against the lower-wage workers of the Global South, to which capital can always be relocated. As a result, advanced-country workers experience scarcely any increase in their real wages even in absolute terms: in fact, Joseph Stiglitz estimated the average real wage of a male American worker in 2011 to have been marginally lower than in 1968.1
At the same time, notwithstanding whatever relocation of activity occurs from the North to the South, the large labor reserves of the South—a legacy of its colonial past—do not get exhausted. On the contrary, they increase relative to the workforce, because of the substantial increase in labor productivity that occurs everywhere owing to the adoption of more rapid technological change, the latter a fallout of the intensification of competition in the world market under the neoliberal dispensation. The non-diminution in the relative size of labor reserves implies that real wages in the Global South remain more or less tied to a subsistence level.
Thus, in both the North and the South the vector of real wages scarcely increases, even as labor productivity rises apace, giving rise to an increase in the share of economic surplus in world output and as well as within individual countries.2 Since a larger proportion of income on average is consumed by working people than by those who live off the economic surplus, a rise in the share of economic surplus has the effect of keeping down consumption demand and hence aggregate demand relative to producible output. This in turn gives rise to an ex ante tendency toward overproduction, of which the actually observed stagnation and increased unemployment are manifestations.3
What is remarkable about neoliberal capitalism, however, is not just this tendency toward stagnation and higher unemployment; even more striking is the fact that the most potent countermeasure against it—namely, larger state expenditure—becomes more or less completely infructuous under neoliberal capitalism. For larger state expenditure to increase the level of aggregate demand to counter stagnation, it must be financed either through a fiscal deficit (in which case nobody is being additionally taxed and hence nobody’s consumption is going down, even as demand from the state goes up), or through greater taxes on the rich (who save a part of their incomes, so that their consumption does not go down by the full amount of additional taxes, with the result that the expenditure of the tax revenue gives rise to a net increase in demand). If larger state expenditure is financed through taxes on working people, who more or less consume their entire income, then the demand generated by the extra state expenditure would be offset by the demand curtailed through reduced consumption by the working people, so that there is no net increase in aggregate demand, and no respite from stagnation and higher unemployment.
However, both forms of financing larger state expenditure, if such expenditure is to be expansionary, are opposed by finance capital. Finance capital is opposed to larger taxes on the rich, since big financiers prominently figure among the rich; and it is opposed to larger fiscal deficits, which is why most countries in the neoliberal era have “fiscal responsibility” legislation limiting the ratio of fiscal deficit to gross domestic product (typically to about 3 percent). And since finance capital is globalized while the state remains a nation-state, the former’s writ must prevail in matters of state policy, for otherwise the country would be subject to an outflow of finance, precipitating a crisis. Neoliberalism therefore not only gives rise to ex ante overproduction, causing stagnation and higher unemployment, but thwarts the most powerful countermeasures against it. There is no escape within neoliberalism from the stagnation and increased unemployment generated by neoliberalism itself. In other words, neoliberalism takes world capitalism to an eventual cul-de-sac from which there is no escape unless neoliberalism itself is transcended. This is the situation in which world capitalism finds itself today.4
The Upsurge of Neofascism
World capitalism’s response to this cul-de-sac so far has been the promotion of neofascism. Neofascist elements exist in every modern society, promoting hatred in the majority segment of the population against some hapless ethnic or religious minority, but generally as a fringe phenomenon. They move to center stage, and even to seats of power, only when they obtain the financial and media support of monopoly capital in general, and especially of a segment within it consisting of new elements of monopoly capital. And this happens only when there is an economic crisis whose deleterious effects on the petty bourgeoisie, the working class, and even small capitalists create disaffections among them that threaten the hegemony of monopoly capital.
A corporate-neofascist alliance then comes into being which suppresses democratic rights and institutions; uses a combination of state repression and repression by fascist thugs against political opponents, intellectuals, artists, and the left; tries to build up a personality cult around the “leader” who is supposed to symbolize the “nation”; and seeks to create and propagate a distractive hatred-mongering discourse with the aim of dividing the working class and preventing any challenge to the hegemony of monopoly capital.5
The upsurge of neofascism all over the world today is symptomatic of the current structural crisis of world capitalism. In some countries, like Argentina, India, Italy, and the United States, neofascists have acquired power; in others, like France and Germany, they are close to it; but everywhere a move to the extreme right is clearly discernible.
Neofascism, however, is also in no position to overcome the economic crisis; the same factors that make the liberal-bourgeois state incapable of countering the tendency toward stagnation and higher unemployment also hinder the neofascist state. The contradiction arising from the globalization of finance in a world of nation-states afflicts the neofascist state as much as it afflicts the liberal-bourgeois state. As a result, neofascism today cannot replicate what fascism did in the 1930s, namely, overcome mass unemployment in countries where it came to power, through an enormous increase in fiscal deficit-financed state expenditure on rearmament.6 This gives neofascism less control over society than classical fascism had, but it also makes neofascism a more lingering phenomenon; the neofascists may even get voted out of power (for, while using every skulduggery to scuttle democracy, they do not necessarily abrogate elections), but they would still remain in the wings and even come back to power (as Donald Trump has done).
Even neofascists, however, have to have some economic agenda, for the distractive discourse of “othering” a minority cannot suffice forever. The two possible ways of overcoming the contradiction between the nation-state and globalized finance are both infeasible for neofascism: one is having a surrogate “world state” or mimicking a “world state” to control international capital and raise global aggregate demand. This means in effect a coordinated fiscal stimulus among many countries, where each state spends more either by enlarging the fiscal deficit or by synchronously taxing the rich.7 The other way is a total delinking from a regime of globalization of finance by imposing controls over capital flows at the national level and enlarging state expenditure through either of these means (increased fiscal deficits or taxing the rich). Monopoly capital would reject both these options, for they represent a means of circumventing its hegemony. What program neofascism can suggest in this context becomes therefore a point of interest.
Postwar Capitalism: A Leader Without Colonies
The second economic aspect of the current structural crisis of capitalism is rooted in the very nature of postwar capitalism. Post-Second World War capitalism differed from pre-First World War capitalism—we leave out the interwar period as one of exceptional turbulence and transition—in a crucial way. In the postwar period, the system had to shed its colonial empire, which meant two things: first, it lost all its “markets on tap,” to borrow an expression used by British economic historian S. B. Saul, and second, the annual “drain of surplus” from the colonies was no longer available to the new leader of the capitalist world, the United States.8 This “drain” had meant the leading capitalist power of the earlier period, Britain, simply snatching away without any quid pro quo the export surplus of its colonies vis-à-vis the rest of the world. Decolonization meant an end to this “drain.”9 Both these developments arising from the phenomenon of decolonization had a profound effect on the economy of the postwar leader of the capitalist world.
The capitalist world has always had a leader under whose aegis capitalism gets diffused to new areas and who also acts as a defender of the system. The task of leadership necessarily requires the leader to run a current account deficit vis-à-vis the non-colonial world. This is because the diffusion of capitalism to new countries requires the latter to find markets for their goods and the leader has to accommodate these ambitions by keeping its own market open to their goods, which entails its running a current account deficit vis-à-vis them. Besides, the management of the global dominance of capitalism, which is one of the tasks of the leader, requires it to spend large sums of money, which also entails a current account deficit. The United States, for example, maintains more than 750 military bases around the world to defend the system (including its own empire, which is an integral part of the system). This means expenditure on local goods and services all around the world, which contributes to its current account deficit.
Historically, the “drain” from the colonies and the selling of the leader’s goods in colonial markets have played a major role in paying for this deficit, so that the leader not only does not get into debt but even has an overall current account surplus to make capital exports that aid the diffusion of capitalism. As the leader of postwar capitalism, the United States—because it did not have such a colonial empire—fell into increasing external debt while fulfilling its leadership role. It had of course an empire in the sense of an economic territory that it controlled from where it obtained its essential raw materials. But it could not “drain away a surplus” by taxing this empire, that is, it could not obtain a substantial part of these raw materials gratis; nor could it sell its goods there without meeting tariff resistance. Hence, even though the United States had begun with a large current account surplus immediately after the war, it fell into a chronic deficit by the mid-1970s, and is today the world’s most indebted country.
How the earlier leader of the capitalist world, Britain, avoided this fate, comes out clearly from the work of Saul. In 1910, Britain’s total current and capital account deficit (capital account deficits refer to capital exports) vis-à-vis countries with which it had such an overall deficit—that is, Continental Europe, the United States, and other temperate regions of European settlement like Canada, Australia, New Zealand, and South Africa—amounted to £145 million; its overall deficit vis-à-vis Continental Europe and the United States alone amounted to £90 million. Meanwhile, a current account surplus of as much as £60 million was raised from just one colony, namely India.
This sum of £60 million had three parts: (1) Britain’s merchandise export surplus to India, in a situation where its exports were still dominated by cotton textiles that had had a “deindustrializing” impact upon the Indian economy by displacing its traditional precapitalist producers, including handloom weavers; (2) the “drain” from India, consisting of India’s merchandise export surplus to the rest of the world, which Britain appropriated; and (3) Britain’s net invisible earnings from India in the form of shipping, insurance, and other commercial items. These imposed obligations upon India, which paid for as much as two-thirds of Britain’s total deficit vis-à-vis Continental Europe and the United States, and two-fifths of its total deficit vis-à-vis all countries with which it had an overall deficit, became possible because of India’s colonial status. The United States, not having any colonies and hence access to any such exactions, fell into increasing debt. Of course, having colonies might not have been enough for it to avoid indebtedness; but that is not germane here. It simply did not have any colonies, unlike Britain.
Getting into such external debt does not matter as long as the currency of the leading country is considered “as good as gold”: economic institutions and individuals all around the world are then willing to hold this currency in unlimited quantities. Under the Bretton Woods system, the U.S. dollar was in fact officially ordained to be “as good as gold,” convertible to gold at $35 per ounce. Even after the official convertibility of the dollar to gold was ended by the Nixon administration—owing, inter alia, to the pressure of France’s moving away from the dollar under President Charles de Gaulle—confidence in the value of the dollar was soon restored at a new parity, though no longer officially supported.
Although this confidence has sustained the international financial system, there is no denying the massive threat to the dollar and hence to this system arising from the status of the United States as the world’s largest debtor and the trillions of dollars (or dollar-denominated assets) sloshing around the world. This threat is usually discussed in terms of a possible move of the world’s wealth-holders from dollars to some other currency; and since no other currency is as important as the dollar in the world economy today, this threat is usually underplayed. What this entire discussion misses, however, is the threat to the international financial system arising from a possible shift from dollars to commodities, in particular to a crucial commodity like oil.
In fact, the stability of the post–Bretton Woods system can be said to have been based on the expectation of a stable dollar price of oil (despite short-term fluctuations); indeed, so important is this factor that the entire post–Bretton Woods system can be called an “oil-dollar standard.” Even a transient move from dollars to oil, in short, can easily destabilize it.
The Threat to the Financial System
It is worth recollecting an old debate here. Paul Baran in The Political Economy of Growth had underscored the limits to Keynesian demand management with the argument that running a persistent fiscal deficit increases the vulnerability of the economy to inflation. Joan Robinson had criticized this argument and accused Baran of dragging in a discredited quantity theory of money.10 Baran’s point, however, was quite different from what Robinson had taken it to be. Baran was not talking about “reading the Quantity equation from the left to the right”; that is, he was not talking about the buildup of money supply or near-money supply in private hands through fiscal deficits. He was talking about the buildup of private wealth in the form of claims upon the government. Even in a world where money supply is entirely endogenous, when the price of a commodity is expected to rise sufficiently to make the purchase of it for speculative purposes worthwhile, the marginal risk-premium associated with the purchase of a unit of it with one’s own funds is less than that associated with purchasing it with borrowed funds. This is a proposition that follows directly from the principle of increasing risk. Hence, the larger the magnitude of private wealth in the form of claims on the government relative to gross domestic product, the more, ceteris paribus, the economy is prone to inflation through a possible speculative shift to commodities.11
A similar argument for the world economy can be advanced in the case we are discussing. Having a colonial empire, extractions from which negate the leading country’s need for external borrowing, is analogous within one country to government expenditure being financed by taxes, hence negating the need for a fiscal deficit. Likewise, mounting external debt of the leading country to finance its current account deficit is analogous to a government within a national economy resorting to mounting public debt to finance its expenditure. The greater the magnitude of this debt relative to the output flow, the more this system is prone to inflation.
To say this is not to claim that an inflationary upsurge is imminent in the world economy; it is just to draw attention to the precarious position in which the world economy is perched at present because of the persistent current account deficits being run by the leading capitalist country over a long period. In case of a sudden eruption of inflation, the world economy, which is already experiencing stagnation and higher unemployment, would be pushed by the anti-inflationary measures that the situation would then call forth, into an acute recession.
Trump’s Economic Strategy
Donald Trump’s economic strategy has to be seen in this context. It is fashionable in liberal circles to dismiss his economic measures as the actions of an imbecile or an unbalanced mind; but this is too facile a reading of the situation. Trump, on the contrary, has a strategy with two components. One is a sharing of the U.S. role as the “defender of the capitalist world” with other advanced capitalist countries. Trump’s insistence that European countries should spend 5 percent of their GDP on military expenditure is part of this component. This would reduce the current account deficit of the United States.
The other component amounts to getting for the United States the same “advantages” that Britain derived from its colonial empire. This component of the strategy amounts to a recolonization of the Global South. Whether Trump has fully thought out the implications of pursuing this project of recolonization, and whether the project of recolonization would actually succeed in overcoming the predicament in which U.S. imperialism currently finds itself, are issues that we do not go into here; what concerns us is the interpretation that can be provided for Trump’s strategy.
To say that the attempt is to recolonize the Global South does not of course mean ruling it with viceroys sent from Washington; the idea is to have pliant regimes in the South pursuing economic policies that are dictated by the United States. Recolonization does not mean a transcendence of neoliberalism, which, as we have seen, the monopoly bourgeoisie does not want anywhere. It means the introduction of a further asymmetry into the neoliberal order, where the Global South remains trapped within neoliberalism in its pristine form, while the United States (and possibly the Global North) moves away from neoliberalism in matters relating to trade, while adhering to it with regard to the freedom of capital movements, including those relating to finance.
Such asymmetry necessarily entails shifting the burden of the crisis on to the shoulders of the Global South, which means in effect—since the monopoly bourgeoisies of the countries of the South would have to be complicit with the new economic regime being introduced—an intensification of the squeeze on the peasantry, the petty bourgeoisie, the small capitalists, and of course the workers and agricultural laborers of the Global South.
Recolonization of the Global South
One part of this recolonization effort is to impose unequal trade treaties by the United States on countries of the Global South, of which the Indo-U.S. trade treaty currently being negotiated is an example. (It had been finalized earlier, but the U.S. Supreme Court ruling against Trump’s tariffs has opened it for renegotiation, though the new final form would not be too different from the earlier one.)12 In fact, Trump’s tariff aggression can be seen as an instrument for pressuring countries of the South to accept such unequal treaties as the “lesser evil” compared to the alternative of facing humongous U.S. tariffs.
The Indo-U.S. trade treaty permits the United States to impose tariffs on Indian goods while India is allowed to impose zero or much lower tariffs on American goods. The treaty is a way of ensuring that India buys more imports from the United States, exactly the way that the colonies were obliged to buy from England without having the freedom to protect their own economies.
Not content with this, the treaty also sets actual targets for how much India should import from the United States by specific dates; and these targets are far higher than the existing levels of India’s imports from the United States. Significantly, there are no corresponding targets for imports by the United States from India, which only underscores the unequal nature of the treaty. The imposition of such absolute targets goes even beyond what prevailed in the colonial period. While colonial India for instance had no freedom to impose tariffs on British goods, the actual amount of imports from Britain in the colonial period was left to the demand for them prevailing in the Indian market. The Indo-U.S. trade treaty, however, not satisfied with an arrangement of this nature alone, stipulates how much India should buy from the United States over a certain period! Since there is no reason to believe that the United States is particularly vindictive toward India, one can expect similar unequal treaties to be imposed on other countries of the Global South.
Such treaties imposed on trading partners have the effect both of raising employment and output within the United States through a “beggar-thy-neighbor” policy and of reducing the U.S. trade deficit, and hence its current account deficit. They raise domestic output and employment by raising aggregate demand through an increase in net exports (that is, in X—M) without having to increase state expenditure; hence the question of confronting international finance capital, by increasing the fiscal deficit or taxes on the rich for financing such larger state expenditure, simply does not arise. Solutions to both the crises confronting U.S. imperialism—output stagnation and a yawning current account deficit—are thus being sought through such unequal treaties without simultaneously mounting any challenge to the hegemony of international finance capital.
This however is only one part of the effort toward recolonization of the Global South. The other part of the recolonization effort lies in the United States getting hold of sources of crucial raw materials, especially oil, located in the South. The assault on Venezuela, which has the largest proven oil reserves in the world; the abduction of Venezuela’s president; and the attack on Iran, another major oil producer, are indicative of this aspect of the recolonization effort. The claim on the resources of Greenland, which has deposits of rare earths, a critical input for several activities, also falls into this pattern.
The United States is already the world’s largest oil producer; getting hold of Venezuela’s and Iran’s oil resources (and those of other countries that would be subsequently targeted) would give Washington a stranglehold over the world’s oil economy, which would be reinforced by its closeness to Saudi Arabia and other West Asian oil producers.
This stranglehold would help the United States in multiple ways to maintain the dominance of the dollar. First, it would ensure that the dollar remains the medium of circulation in the overwhelming bulk of oil transactions in the world; second, it would ensure that the expectation of stability in the dollar price of oil—which prevents any shift from dollar to oil and thereby maintains the “real” value of the dollar vis-à-vis the world of commodities—remains even more firmly grounded; and third, by opening up these oil resources to exploitation by U.S. firms, which can simply appropriate a chunk of these resources, it would allow the United States to obtain a “drain of surplus” in exactly the way that Britain did from its colonies; this last would help in closing the U.S. current account deficit.
While political decolonization after the Second World War was comparatively smooth, it was followed by a far more arduous economic decolonization, through which the countries of the Global South sought to wrest control over their natural resources from metropolitan capital. Economic decolonization was fiercely resisted by imperialism, which engineered coups to topple governments attempting economic decolonization and even fomented civil wars to sabotage such efforts. The instances of aggression against Jacobo Árbenz in Guatemala, Mohammad Mossadegh in Iran, Gamal Abdel Nasser in Egypt, Patrice Lumumba in Congo, and Salvador Allende in Chile come readily to mind as visible attempts at preventing economic decolonization. The Soviet Union had played a crucial role in defeating many such imperialist attempts and in aiding the process of economic decolonization.
Trump is insistent on reversing economic decolonization; what is more, he is breaking wholly new ground in the process of doing so. He is actually taking direct military action, as distinct from fomenting coups and such like, to wrest control over the resources of the South back from the countries of the South. Iran is the classic example of this. Such direct military action for no conceivable reason other than grabbing their resources constitutes a totally new chapter in the history of modern imperialism.
Resistance of the Global South
The people of the Global South however will not meekly accept such recolonization by imperialism. In many countries of the South, the big bourgeoisie, frustrated by the hurdles placed against its growth by the colonial regime, had joined the struggle for independence and been a part of the anticolonial front; India is a classic example. What is certainly true is that the big bourgeoisie, and even a segment of the urban upper-middle class keen to send its children to settle down in metropolitan countries, have changed sides since then, and deserted the anti-imperialist camp. But the other classes, which were part of the anticolonial front and would also be hard hit by the recolonization project of U.S. imperialism, will put up a stout resistance against recolonization.
This resistance moreover will be directed not only against imperialism but also against the domestic monopoly bourgeoisie; it will also be directed politically against neofascist regimes wherever such regimes are in power with the support of the monopoly bourgeoisie. It will, as a consequence, have immense revolutionary possibilities. The coming months are thus likely to see fierce struggles in the Global South, which will be no doubt painful but of great historical importance.
The fact that recolonization by imperialism will not be easy is demonstrated by what is happening in Iran. In fact, the resistance in Iran has come as a great surprise for U.S. imperialism. If Iran had crumbled easily, then imperialism would have been emboldened to pursue its recolonization project with even greater vigor and alacrity, and other countries in the Global South would have felt enfeebled in their anti-imperialist struggle. There is, in other words, a dialectics of resistance, where one country’s stout resistance strengthens the will to resist by other countries; there is also a dialectics of enfeeblement, where one country’s feeble response to imperialist recolonization serves to discourage other countries. The intrepid struggle put up by Iran is an invigorating force for the Global South as a whole. Imperialism of course would not abandon its agenda for recolonizing the Global South because of Iran’s resistance, but it would be certainly slowed down in pursuing its agenda.
Notes
Prabhat Patnaik
There are at least two important economic aspects of the current structural crisis of capitalism. The first is the overall stagnation and increased unemployment with which world capitalism in its neoliberal phase has been confronted. The higher unemployment in many cases, such as in the United States, is camouflaged by a reduction in the work participation rate, but its reality is undeniable. The stagnation was manifest even before the pandemic: the decadal rate of growth of the world economy over the 2010s decade was lower than in any preceding decade since the Second World War.
Rising Share of Surplus and Ex Ante Overproduction
The reason for this stagnation lies in the very nature of neoliberal capitalism itself, which has seen a massive increase in income and wealth inequality within each country. Since capital, including finance, enjoys more or less free global mobility under the neoliberal regime, while workers remain confined to their respective countries (except when specifically permitted to migrate), workers in advanced countries in effect compete against the lower-wage workers of the Global South, to which capital can always be relocated. As a result, advanced-country workers experience scarcely any increase in their real wages even in absolute terms: in fact, Joseph Stiglitz estimated the average real wage of a male American worker in 2011 to have been marginally lower than in 1968.1
At the same time, notwithstanding whatever relocation of activity occurs from the North to the South, the large labor reserves of the South—a legacy of its colonial past—do not get exhausted. On the contrary, they increase relative to the workforce, because of the substantial increase in labor productivity that occurs everywhere owing to the adoption of more rapid technological change, the latter a fallout of the intensification of competition in the world market under the neoliberal dispensation. The non-diminution in the relative size of labor reserves implies that real wages in the Global South remain more or less tied to a subsistence level.
Thus, in both the North and the South the vector of real wages scarcely increases, even as labor productivity rises apace, giving rise to an increase in the share of economic surplus in world output and as well as within individual countries.2 Since a larger proportion of income on average is consumed by working people than by those who live off the economic surplus, a rise in the share of economic surplus has the effect of keeping down consumption demand and hence aggregate demand relative to producible output. This in turn gives rise to an ex ante tendency toward overproduction, of which the actually observed stagnation and increased unemployment are manifestations.3
What is remarkable about neoliberal capitalism, however, is not just this tendency toward stagnation and higher unemployment; even more striking is the fact that the most potent countermeasure against it—namely, larger state expenditure—becomes more or less completely infructuous under neoliberal capitalism. For larger state expenditure to increase the level of aggregate demand to counter stagnation, it must be financed either through a fiscal deficit (in which case nobody is being additionally taxed and hence nobody’s consumption is going down, even as demand from the state goes up), or through greater taxes on the rich (who save a part of their incomes, so that their consumption does not go down by the full amount of additional taxes, with the result that the expenditure of the tax revenue gives rise to a net increase in demand). If larger state expenditure is financed through taxes on working people, who more or less consume their entire income, then the demand generated by the extra state expenditure would be offset by the demand curtailed through reduced consumption by the working people, so that there is no net increase in aggregate demand, and no respite from stagnation and higher unemployment.
However, both forms of financing larger state expenditure, if such expenditure is to be expansionary, are opposed by finance capital. Finance capital is opposed to larger taxes on the rich, since big financiers prominently figure among the rich; and it is opposed to larger fiscal deficits, which is why most countries in the neoliberal era have “fiscal responsibility” legislation limiting the ratio of fiscal deficit to gross domestic product (typically to about 3 percent). And since finance capital is globalized while the state remains a nation-state, the former’s writ must prevail in matters of state policy, for otherwise the country would be subject to an outflow of finance, precipitating a crisis. Neoliberalism therefore not only gives rise to ex ante overproduction, causing stagnation and higher unemployment, but thwarts the most powerful countermeasures against it. There is no escape within neoliberalism from the stagnation and increased unemployment generated by neoliberalism itself. In other words, neoliberalism takes world capitalism to an eventual cul-de-sac from which there is no escape unless neoliberalism itself is transcended. This is the situation in which world capitalism finds itself today.4
The Upsurge of Neofascism
World capitalism’s response to this cul-de-sac so far has been the promotion of neofascism. Neofascist elements exist in every modern society, promoting hatred in the majority segment of the population against some hapless ethnic or religious minority, but generally as a fringe phenomenon. They move to center stage, and even to seats of power, only when they obtain the financial and media support of monopoly capital in general, and especially of a segment within it consisting of new elements of monopoly capital. And this happens only when there is an economic crisis whose deleterious effects on the petty bourgeoisie, the working class, and even small capitalists create disaffections among them that threaten the hegemony of monopoly capital.
A corporate-neofascist alliance then comes into being which suppresses democratic rights and institutions; uses a combination of state repression and repression by fascist thugs against political opponents, intellectuals, artists, and the left; tries to build up a personality cult around the “leader” who is supposed to symbolize the “nation”; and seeks to create and propagate a distractive hatred-mongering discourse with the aim of dividing the working class and preventing any challenge to the hegemony of monopoly capital.5
The upsurge of neofascism all over the world today is symptomatic of the current structural crisis of world capitalism. In some countries, like Argentina, India, Italy, and the United States, neofascists have acquired power; in others, like France and Germany, they are close to it; but everywhere a move to the extreme right is clearly discernible.
Neofascism, however, is also in no position to overcome the economic crisis; the same factors that make the liberal-bourgeois state incapable of countering the tendency toward stagnation and higher unemployment also hinder the neofascist state. The contradiction arising from the globalization of finance in a world of nation-states afflicts the neofascist state as much as it afflicts the liberal-bourgeois state. As a result, neofascism today cannot replicate what fascism did in the 1930s, namely, overcome mass unemployment in countries where it came to power, through an enormous increase in fiscal deficit-financed state expenditure on rearmament.6 This gives neofascism less control over society than classical fascism had, but it also makes neofascism a more lingering phenomenon; the neofascists may even get voted out of power (for, while using every skulduggery to scuttle democracy, they do not necessarily abrogate elections), but they would still remain in the wings and even come back to power (as Donald Trump has done).
Even neofascists, however, have to have some economic agenda, for the distractive discourse of “othering” a minority cannot suffice forever. The two possible ways of overcoming the contradiction between the nation-state and globalized finance are both infeasible for neofascism: one is having a surrogate “world state” or mimicking a “world state” to control international capital and raise global aggregate demand. This means in effect a coordinated fiscal stimulus among many countries, where each state spends more either by enlarging the fiscal deficit or by synchronously taxing the rich.7 The other way is a total delinking from a regime of globalization of finance by imposing controls over capital flows at the national level and enlarging state expenditure through either of these means (increased fiscal deficits or taxing the rich). Monopoly capital would reject both these options, for they represent a means of circumventing its hegemony. What program neofascism can suggest in this context becomes therefore a point of interest.
Postwar Capitalism: A Leader Without Colonies
The second economic aspect of the current structural crisis of capitalism is rooted in the very nature of postwar capitalism. Post-Second World War capitalism differed from pre-First World War capitalism—we leave out the interwar period as one of exceptional turbulence and transition—in a crucial way. In the postwar period, the system had to shed its colonial empire, which meant two things: first, it lost all its “markets on tap,” to borrow an expression used by British economic historian S. B. Saul, and second, the annual “drain of surplus” from the colonies was no longer available to the new leader of the capitalist world, the United States.8 This “drain” had meant the leading capitalist power of the earlier period, Britain, simply snatching away without any quid pro quo the export surplus of its colonies vis-à-vis the rest of the world. Decolonization meant an end to this “drain.”9 Both these developments arising from the phenomenon of decolonization had a profound effect on the economy of the postwar leader of the capitalist world.
The capitalist world has always had a leader under whose aegis capitalism gets diffused to new areas and who also acts as a defender of the system. The task of leadership necessarily requires the leader to run a current account deficit vis-à-vis the non-colonial world. This is because the diffusion of capitalism to new countries requires the latter to find markets for their goods and the leader has to accommodate these ambitions by keeping its own market open to their goods, which entails its running a current account deficit vis-à-vis them. Besides, the management of the global dominance of capitalism, which is one of the tasks of the leader, requires it to spend large sums of money, which also entails a current account deficit. The United States, for example, maintains more than 750 military bases around the world to defend the system (including its own empire, which is an integral part of the system). This means expenditure on local goods and services all around the world, which contributes to its current account deficit.
Historically, the “drain” from the colonies and the selling of the leader’s goods in colonial markets have played a major role in paying for this deficit, so that the leader not only does not get into debt but even has an overall current account surplus to make capital exports that aid the diffusion of capitalism. As the leader of postwar capitalism, the United States—because it did not have such a colonial empire—fell into increasing external debt while fulfilling its leadership role. It had of course an empire in the sense of an economic territory that it controlled from where it obtained its essential raw materials. But it could not “drain away a surplus” by taxing this empire, that is, it could not obtain a substantial part of these raw materials gratis; nor could it sell its goods there without meeting tariff resistance. Hence, even though the United States had begun with a large current account surplus immediately after the war, it fell into a chronic deficit by the mid-1970s, and is today the world’s most indebted country.
How the earlier leader of the capitalist world, Britain, avoided this fate, comes out clearly from the work of Saul. In 1910, Britain’s total current and capital account deficit (capital account deficits refer to capital exports) vis-à-vis countries with which it had such an overall deficit—that is, Continental Europe, the United States, and other temperate regions of European settlement like Canada, Australia, New Zealand, and South Africa—amounted to £145 million; its overall deficit vis-à-vis Continental Europe and the United States alone amounted to £90 million. Meanwhile, a current account surplus of as much as £60 million was raised from just one colony, namely India.
This sum of £60 million had three parts: (1) Britain’s merchandise export surplus to India, in a situation where its exports were still dominated by cotton textiles that had had a “deindustrializing” impact upon the Indian economy by displacing its traditional precapitalist producers, including handloom weavers; (2) the “drain” from India, consisting of India’s merchandise export surplus to the rest of the world, which Britain appropriated; and (3) Britain’s net invisible earnings from India in the form of shipping, insurance, and other commercial items. These imposed obligations upon India, which paid for as much as two-thirds of Britain’s total deficit vis-à-vis Continental Europe and the United States, and two-fifths of its total deficit vis-à-vis all countries with which it had an overall deficit, became possible because of India’s colonial status. The United States, not having any colonies and hence access to any such exactions, fell into increasing debt. Of course, having colonies might not have been enough for it to avoid indebtedness; but that is not germane here. It simply did not have any colonies, unlike Britain.
Getting into such external debt does not matter as long as the currency of the leading country is considered “as good as gold”: economic institutions and individuals all around the world are then willing to hold this currency in unlimited quantities. Under the Bretton Woods system, the U.S. dollar was in fact officially ordained to be “as good as gold,” convertible to gold at $35 per ounce. Even after the official convertibility of the dollar to gold was ended by the Nixon administration—owing, inter alia, to the pressure of France’s moving away from the dollar under President Charles de Gaulle—confidence in the value of the dollar was soon restored at a new parity, though no longer officially supported.
Although this confidence has sustained the international financial system, there is no denying the massive threat to the dollar and hence to this system arising from the status of the United States as the world’s largest debtor and the trillions of dollars (or dollar-denominated assets) sloshing around the world. This threat is usually discussed in terms of a possible move of the world’s wealth-holders from dollars to some other currency; and since no other currency is as important as the dollar in the world economy today, this threat is usually underplayed. What this entire discussion misses, however, is the threat to the international financial system arising from a possible shift from dollars to commodities, in particular to a crucial commodity like oil.
In fact, the stability of the post–Bretton Woods system can be said to have been based on the expectation of a stable dollar price of oil (despite short-term fluctuations); indeed, so important is this factor that the entire post–Bretton Woods system can be called an “oil-dollar standard.” Even a transient move from dollars to oil, in short, can easily destabilize it.
The Threat to the Financial System
It is worth recollecting an old debate here. Paul Baran in The Political Economy of Growth had underscored the limits to Keynesian demand management with the argument that running a persistent fiscal deficit increases the vulnerability of the economy to inflation. Joan Robinson had criticized this argument and accused Baran of dragging in a discredited quantity theory of money.10 Baran’s point, however, was quite different from what Robinson had taken it to be. Baran was not talking about “reading the Quantity equation from the left to the right”; that is, he was not talking about the buildup of money supply or near-money supply in private hands through fiscal deficits. He was talking about the buildup of private wealth in the form of claims upon the government. Even in a world where money supply is entirely endogenous, when the price of a commodity is expected to rise sufficiently to make the purchase of it for speculative purposes worthwhile, the marginal risk-premium associated with the purchase of a unit of it with one’s own funds is less than that associated with purchasing it with borrowed funds. This is a proposition that follows directly from the principle of increasing risk. Hence, the larger the magnitude of private wealth in the form of claims on the government relative to gross domestic product, the more, ceteris paribus, the economy is prone to inflation through a possible speculative shift to commodities.11
A similar argument for the world economy can be advanced in the case we are discussing. Having a colonial empire, extractions from which negate the leading country’s need for external borrowing, is analogous within one country to government expenditure being financed by taxes, hence negating the need for a fiscal deficit. Likewise, mounting external debt of the leading country to finance its current account deficit is analogous to a government within a national economy resorting to mounting public debt to finance its expenditure. The greater the magnitude of this debt relative to the output flow, the more this system is prone to inflation.
To say this is not to claim that an inflationary upsurge is imminent in the world economy; it is just to draw attention to the precarious position in which the world economy is perched at present because of the persistent current account deficits being run by the leading capitalist country over a long period. In case of a sudden eruption of inflation, the world economy, which is already experiencing stagnation and higher unemployment, would be pushed by the anti-inflationary measures that the situation would then call forth, into an acute recession.
Trump’s Economic Strategy
Donald Trump’s economic strategy has to be seen in this context. It is fashionable in liberal circles to dismiss his economic measures as the actions of an imbecile or an unbalanced mind; but this is too facile a reading of the situation. Trump, on the contrary, has a strategy with two components. One is a sharing of the U.S. role as the “defender of the capitalist world” with other advanced capitalist countries. Trump’s insistence that European countries should spend 5 percent of their GDP on military expenditure is part of this component. This would reduce the current account deficit of the United States.
The other component amounts to getting for the United States the same “advantages” that Britain derived from its colonial empire. This component of the strategy amounts to a recolonization of the Global South. Whether Trump has fully thought out the implications of pursuing this project of recolonization, and whether the project of recolonization would actually succeed in overcoming the predicament in which U.S. imperialism currently finds itself, are issues that we do not go into here; what concerns us is the interpretation that can be provided for Trump’s strategy.
To say that the attempt is to recolonize the Global South does not of course mean ruling it with viceroys sent from Washington; the idea is to have pliant regimes in the South pursuing economic policies that are dictated by the United States. Recolonization does not mean a transcendence of neoliberalism, which, as we have seen, the monopoly bourgeoisie does not want anywhere. It means the introduction of a further asymmetry into the neoliberal order, where the Global South remains trapped within neoliberalism in its pristine form, while the United States (and possibly the Global North) moves away from neoliberalism in matters relating to trade, while adhering to it with regard to the freedom of capital movements, including those relating to finance.
Such asymmetry necessarily entails shifting the burden of the crisis on to the shoulders of the Global South, which means in effect—since the monopoly bourgeoisies of the countries of the South would have to be complicit with the new economic regime being introduced—an intensification of the squeeze on the peasantry, the petty bourgeoisie, the small capitalists, and of course the workers and agricultural laborers of the Global South.
Recolonization of the Global South
One part of this recolonization effort is to impose unequal trade treaties by the United States on countries of the Global South, of which the Indo-U.S. trade treaty currently being negotiated is an example. (It had been finalized earlier, but the U.S. Supreme Court ruling against Trump’s tariffs has opened it for renegotiation, though the new final form would not be too different from the earlier one.)12 In fact, Trump’s tariff aggression can be seen as an instrument for pressuring countries of the South to accept such unequal treaties as the “lesser evil” compared to the alternative of facing humongous U.S. tariffs.
The Indo-U.S. trade treaty permits the United States to impose tariffs on Indian goods while India is allowed to impose zero or much lower tariffs on American goods. The treaty is a way of ensuring that India buys more imports from the United States, exactly the way that the colonies were obliged to buy from England without having the freedom to protect their own economies.
Not content with this, the treaty also sets actual targets for how much India should import from the United States by specific dates; and these targets are far higher than the existing levels of India’s imports from the United States. Significantly, there are no corresponding targets for imports by the United States from India, which only underscores the unequal nature of the treaty. The imposition of such absolute targets goes even beyond what prevailed in the colonial period. While colonial India for instance had no freedom to impose tariffs on British goods, the actual amount of imports from Britain in the colonial period was left to the demand for them prevailing in the Indian market. The Indo-U.S. trade treaty, however, not satisfied with an arrangement of this nature alone, stipulates how much India should buy from the United States over a certain period! Since there is no reason to believe that the United States is particularly vindictive toward India, one can expect similar unequal treaties to be imposed on other countries of the Global South.
Such treaties imposed on trading partners have the effect both of raising employment and output within the United States through a “beggar-thy-neighbor” policy and of reducing the U.S. trade deficit, and hence its current account deficit. They raise domestic output and employment by raising aggregate demand through an increase in net exports (that is, in X—M) without having to increase state expenditure; hence the question of confronting international finance capital, by increasing the fiscal deficit or taxes on the rich for financing such larger state expenditure, simply does not arise. Solutions to both the crises confronting U.S. imperialism—output stagnation and a yawning current account deficit—are thus being sought through such unequal treaties without simultaneously mounting any challenge to the hegemony of international finance capital.
This however is only one part of the effort toward recolonization of the Global South. The other part of the recolonization effort lies in the United States getting hold of sources of crucial raw materials, especially oil, located in the South. The assault on Venezuela, which has the largest proven oil reserves in the world; the abduction of Venezuela’s president; and the attack on Iran, another major oil producer, are indicative of this aspect of the recolonization effort. The claim on the resources of Greenland, which has deposits of rare earths, a critical input for several activities, also falls into this pattern.
The United States is already the world’s largest oil producer; getting hold of Venezuela’s and Iran’s oil resources (and those of other countries that would be subsequently targeted) would give Washington a stranglehold over the world’s oil economy, which would be reinforced by its closeness to Saudi Arabia and other West Asian oil producers.
This stranglehold would help the United States in multiple ways to maintain the dominance of the dollar. First, it would ensure that the dollar remains the medium of circulation in the overwhelming bulk of oil transactions in the world; second, it would ensure that the expectation of stability in the dollar price of oil—which prevents any shift from dollar to oil and thereby maintains the “real” value of the dollar vis-à-vis the world of commodities—remains even more firmly grounded; and third, by opening up these oil resources to exploitation by U.S. firms, which can simply appropriate a chunk of these resources, it would allow the United States to obtain a “drain of surplus” in exactly the way that Britain did from its colonies; this last would help in closing the U.S. current account deficit.
While political decolonization after the Second World War was comparatively smooth, it was followed by a far more arduous economic decolonization, through which the countries of the Global South sought to wrest control over their natural resources from metropolitan capital. Economic decolonization was fiercely resisted by imperialism, which engineered coups to topple governments attempting economic decolonization and even fomented civil wars to sabotage such efforts. The instances of aggression against Jacobo Árbenz in Guatemala, Mohammad Mossadegh in Iran, Gamal Abdel Nasser in Egypt, Patrice Lumumba in Congo, and Salvador Allende in Chile come readily to mind as visible attempts at preventing economic decolonization. The Soviet Union had played a crucial role in defeating many such imperialist attempts and in aiding the process of economic decolonization.
Trump is insistent on reversing economic decolonization; what is more, he is breaking wholly new ground in the process of doing so. He is actually taking direct military action, as distinct from fomenting coups and such like, to wrest control over the resources of the South back from the countries of the South. Iran is the classic example of this. Such direct military action for no conceivable reason other than grabbing their resources constitutes a totally new chapter in the history of modern imperialism.
Resistance of the Global South
The people of the Global South however will not meekly accept such recolonization by imperialism. In many countries of the South, the big bourgeoisie, frustrated by the hurdles placed against its growth by the colonial regime, had joined the struggle for independence and been a part of the anticolonial front; India is a classic example. What is certainly true is that the big bourgeoisie, and even a segment of the urban upper-middle class keen to send its children to settle down in metropolitan countries, have changed sides since then, and deserted the anti-imperialist camp. But the other classes, which were part of the anticolonial front and would also be hard hit by the recolonization project of U.S. imperialism, will put up a stout resistance against recolonization.
This resistance moreover will be directed not only against imperialism but also against the domestic monopoly bourgeoisie; it will also be directed politically against neofascist regimes wherever such regimes are in power with the support of the monopoly bourgeoisie. It will, as a consequence, have immense revolutionary possibilities. The coming months are thus likely to see fierce struggles in the Global South, which will be no doubt painful but of great historical importance.
The fact that recolonization by imperialism will not be easy is demonstrated by what is happening in Iran. In fact, the resistance in Iran has come as a great surprise for U.S. imperialism. If Iran had crumbled easily, then imperialism would have been emboldened to pursue its recolonization project with even greater vigor and alacrity, and other countries in the Global South would have felt enfeebled in their anti-imperialist struggle. There is, in other words, a dialectics of resistance, where one country’s stout resistance strengthens the will to resist by other countries; there is also a dialectics of enfeeblement, where one country’s feeble response to imperialist recolonization serves to discourage other countries. The intrepid struggle put up by Iran is an invigorating force for the Global South as a whole. Imperialism of course would not abandon its agenda for recolonizing the Global South because of Iran’s resistance, but it would be certainly slowed down in pursuing its agenda.
Notes
- ↩ Joseph Stiglitz, “Inequality is
Holding Back the Recovery,” New York Times, January 13, 2013.
- ↩ The major exception to these
global wage trends is China, where wages have been increasing noticeably,
driven by government policy. This however does not negate the claim of a rising
share of economic surplus in world output as a whole and in individual
countries of the capitalist world.
- ↩ The argument put forward in the
context of the United States by Paul A. Baran and Paul M. Sweezy in Monopoly
Capital (New York: Monthly Review Press, 1966) is being applied here for the
capitalist world as a whole.
- ↩ This point is discussed in
greater detail in Utsa Patnaik and Prabhat Patnaik, Capital and Imperialism
(New York: Monthly Review Press, 2021).
- ↩ Prabhat Patnaik, “Why
Neoliberalism Needs Neofascists,” Boston Review, July 19, 2021.
- ↩ Japan was the first country to
come out of the Great Depression in this manner. Germany followed suit after
Adolf Hitler came to power in 1933.
- ↩ A coordinated fiscal stimulus
involving several countries to come out of the Great Depression had been
suggested in the 1930s by John Maynard Keynes, and also by a group of German
trade unionists, but to no avail. See Charles P. Kindleberger, The World in
Depression, 1929–1939 (Berkeley: University of California Press, 1973).
- ↩ S. B. Saul, Studies in British
Overseas Trade (Liverpool: University of Liverpool Press, 1960).
- ↩ For a discussion and estimate of
the “drain” from India to Britain, see Patnaik and Patnaik, Capital and
Imperialism.
- ↩ Joan Robinson, Economic
Philosophy (Harmondsworth: Penguin, 1966).
- ↩ For a detailed presentation of
this argument, see Prabhat Patnaik, Accumulation and Stability Under Capitalism
(Oxford: Clarendon, 1997), 81–86.
- ↩ For a detailed critique of this treaty, see Biswajit Dhar, “India Has Accepted Gross Asymmetry,” Frontline, February 23, 2026; see also Prabhat Patnaik, “Modi Government’s Gymnastics to Defend the Indo-US Deal,” MR Online, March 4, 2026.
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