Let there be no doubt about it: we live in the era of Financial Empire. Unlike the military conquests that drove the territorial expansions of the empires of old, contemporary Financial Empire consists not in the highly visible exercise of a Big Stick ideology (although military imperialism undoubtedly continues today), but rather takes the shape of an Invisible Hand. Where in the late 19th and early 20th centuries the logic of domination was driven by the instrumental power of imperial states, the Empire of the 21st century no longer needs any sticks to enforce the submission of sovereign states: through the global enforcement mechanisms of market discipline and IMF conditionality, the structural power of finance capital now ensures that all shall bow before the money markets.
In The Accumulation of Capital (1913), Rosa Luxemburg noted that, “though foreign loans are indispensable for the emancipation of 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 policy of the young capitalist states.” So great was this financial control that in the First Wave of Globalization, which ran from 1870 until the onset of WWI in 1914, defaulting countries faced a 40 percent chance of being invaded, subjected to gunboat diplomacy, or having foreign control imposed on their domestic finances under threat of a naval blockade. In a telling and ironic sign of the times, even the Hague Peace Conference of 1906 recognized the legitimacy of the use of force in settling sovereign debt disputes.
[…] Today, the imperial era of gunboat diplomacy may have come to an ignominious end, but the era of Financial Empire is still in full swing. What the ongoing European debt crisis confirms once more is that financial capitalism, once fully developed and globalized, has no need for debtors’ prisons, gunboat diplomacy or US marines to enforce debtor discipline. The iron bars of the debtors’ prison are replaced with the global flows of finance capital; the gunboats have long since made way for what Warren Buffet called the financial weapons of mass destruction; and the foreign administrators of tax and customs offices no longer wear military suits but carry IMF suitcases. Through its control over capital flows and its ability to withhold much-needed credit, the global bankers’ alliance (made up of the big banks and institutional investors, along with international financial institutions and the financial and monetary authorities of the dominant capitalist states) has obtained a form of structural power that allows it to discipline the behavior of indebted countries without having to resort to military coercion. It is this discipline enforced by global capital markets and financial institutions that forms the backbone of Financial Empire. [++]