Harry Magdoff sat down to talk in front of a video camera in April 2003, three weeks before the conference “Imperialism Today” sponsored by Monthly Review in honor of his ninetieth birthday. An edited version of his remarks would be shown on a large screen at the start of the conference. But Harry has much to say that will be left on the cutting room floor, not because it lacks relevance, but because the time for the video is short, and a good portion of it will be devoted to how he became a socialist. Here, then, are Harry’s thoughts on capitalism, imperialism, the United States—and Iraq. (Note: the transcript of the interview was edited in July 2003 under Harry’s supervision to fill in a number of details.)
During the interview, Harry completely ignores the camera and videographer. Dressed in a flannel shirt and dark blue sweatpants, he talks easily and fluently, though he has had a sleepless night. Even approaching ninety, his mind is clear, his words crisp, his gaze strong.
Huck Gutman: Harry, I thought we might start our discussion with an elaboration of your notion that capitalism began as a world economy.
Harry Magdoff: Yes, capitalism was born in a world economy. However, we need to distinguish between merchant capitalism and industrial capitalism. With the development by the fifteenth century of three-masted, heavily armed sailing ships, capable of carrying substantial crews and cargoes over transoceanic distances, both international commerce and naval warfare were propelled forward. The new European ships spread out to the seven seas in search of profits and plunder. In this way the age of discovery, which was also an age of conquest, began in the fifteenth century and marked the rise of merchant capitalism on a world-economic basis. The wealth of western Europe grew by leaps and bounds: gold and silver were taken from South America to feed the banks, and slaves were acquired to produce the consumer goods and raw materials for the workshops of western Europe. World trade was spurred by acquiring new colonies, expanding old ones, the spread of slavery, and outright robbery. These were the outstanding features of the world markets that evolved in the more than two centuries preceding industrial capitalism. A key feature of this merchant stage of capitalism is that it provided not only the markets but also the wealth that fed the industrial revolution that began in the mid-1700s.
Since industrial capitalism developed at different times in different countries, its features would not be identical from one nation to another. But there’s one feature that’s common. The underlying laws of motion are bound to be the same. A degree of balance between investment, consumption, and finance is needed and sought. If important features get out of balance, you get an economic crisis. These crises influence and shape the future, but can’t stray too far from the basic laws of motion. Major ways of overcoming the imbalances are sought through imperialist activities: the search for new markets, for new investment opportunities, spurred by intense competition among nations. There is no escape from the system’s inner logic. Overcoming the ills of capitalism calls for the creation of a sharply different society, based on a transfer of power devoted primarily to meeting the basic needs of all the people. This would mean removing the dictates of markets in search of maximizing profits.
China is an example of how one step in the direction of capitalism leads to another. Twenty-five years ago the ruling group in the Chinese Communist Party decided to create two economic systems. The commanding heights of the economy would be directly controlled under a central plan run by the government while the rest of the society would be open to private enterprise. Encouraged and aided by the state and foreign investment, the private sector expanded at an impressively rapid rate. What and how much to produce came to be determined by the profit-seeking markets. As the economy grew in this fashion a capital market was needed. For that a stock market and merchant banking was started. The foreign investors came to take advantage of the very low wages to compete in international trade. The shift of the economy to a reliance on exports led to China joining the World Trade Organization and following its rules, weakening controls over foreign investment in obedience to the rules of capitalist commerce.
To fit into the pressures of globalization, government enterprise in China is being privatized. Class distinctions as well as differences among the people have been widening. And in following this path, in which private enterprise was encouraged, social welfare declined precipitously in education and medical help for the population as a whole. Unemploy-ment and hunger grew. China changed from an unusually egalitarian society to one with a maldistribution of income remarkably similar to that of the United States.
HG: We frequently hear that capitalism is the best way to spur growth in an economy.
HM: The ruling idea holds that capitalism is bound to grow. Enterprising individuals back a new idea or invention, factories are built, workers employed—ending up in a spiral of increasing supply and demand. There is of course an underlying sense to this model. But it is only a model, not the reality. The dynamo of capitalist growth is investment. But the rate of investment is far from smooth. Investment will slow down when there aren’t enough customers who can afford or want to buy the products.
That’s why the domestic sales of manufactured products generally follow a familiar pattern: sales and output accelerate for a period after being introduced, and then eventually they flatten out like an asymptote. An asymptote is part of a curve. It goes up like this and then slows down. [Harry’s hand rises steeply and then levels out.] For example, take the innovation of refrigeration, which played a crucial role in developing some areas of the U.S. and the emergence of national markets. For our discussion, I want to use home refrigerators as an example.
When the refrigerator was a new invention it was very important in terms of the whole development of capitalism in the United States. But how many refrigerators do people have, how many can a family use? If you are rich you’ll have one in the basement and one in the kitchen, or you’ll have two kitchens. But still, you can’t fill up your house with them. After the people who can afford refrigerators have bought them, the only demand afterwards comes from replacing them, or because there is a growing population with the emergence of new families. A young husband and wife get an apartment, and when they can afford it, they buy a refrigerator. But there isn’t always a dramatic growth of families. So there is a slowdown in the demand. And then the question comes, how do you keep the business going? And how do you expand the business? That’s where the push abroad comes from.
HG: So the motive force for imperialism, its inner dynamic, has always been the tendency toward stagnation.
HM: Yes, although not the only issue, the tendency of stagnation is a major factor leading to imperialism. As I said before, capital investment is the dynamo of growth in a capitalist economy. Since the need for new investment reaches limits, the further pace of capitalist growth depends on new products, new inventions, and large populations for one to conquer.
The rich capitalist countries kept up their rates of growth by penetrating foreign markets. As Joan Robinson put it, “Few would deny that the extension of capitalism into new territories was the mainspring of what an academic economist called the ‘vast secular boom’ of the last two hundred years.” The growth of suburbs [in the United States] after the Second World War was another type of major stimulus. But neither new products nor new technology sufficient to sustain growth come on order. Hence, the persistent drive, by hook or by crook, to create new markets and new investment opportunities in foreign lands. “As the hart panteth after the water,” so the industrially advanced capitalist nations thirst for new worlds to conquer.
But, and this is fundamental, in every successful capitalist country they have only been able to keep this machinery going by getting new markets and breaking down competing markets.
England’s big achievements in the industrial revolution were the development of the steam engine, mechanized production of textiles, mechanized spinning, mechanized weaving, and so on. Before long the English needed new markets for the cloth they were making. Otherwise they would go out of business, because you can’t continue just producing the same thing all the time unless you have somewhere to sell it. And so in the case of England, the Indian textile industry was destroyed in order to create a market for English cloth. India had perfectly good textile production; the cloth they made was certainly more beautiful than that made in England.
Similarly, the way of life of most countries was altered in order to supply new markets and investment opportunities for British, continental European, Japanese, or American businesses. Capitalism has to grow. Otherwise enterprises sink, their production and profits go down sharply, and the banks also get into trouble. That’s what happened in the Great Depression.
Now, Huck, there are of course many other complications. I’m not going to start giving a lecture on the complexities of imperialism. But another important stimulus for obtaining colonies is to have the upper hand in assuring the supply of raw materials. After a time, it was no longer about getting spices, tea, and tobacco from abroad. The factories of the industrial revolution needed to be fed cotton, copper, zinc, and so forth. First they needed coal, which Britain had in large supply. Then they required iron, or copper, or zinc, or nickel, which increasingly meant imports from abroad. The more technologically advanced your products are, the more you need particular, often hard to get, resources for new alloys. The alloys need a little bit of nickel or a lot of nickel. Capitalist production needs materials like that, and it has to go abroad to get them. Although there are different ways of getting these essential supplies, what capitalists want is control—to assure a steady flow when needed.
HG: What motivates the move abroad, then, is the need for new markets as a counter to stagnation, and the need for the materials involved in production?
HM: Yes. New markets and the whole series of materials that are needed are central. But there is a third element. As capitalism develops in a country, the working class struggles for higher wages, reduced hours, and relief from the dictatorial hierarchy above them. When successful, these struggles raise wage levels and other gains, such as a degree of social benefits.
And so the capitalist, in order to increase profits, goes elsewhere to take advantage of the extremely low wages and opportunities for more intense exploitation of underdeveloped countries. In the process the investment of capital abroad disrupts and distorts the existing internal development potential of the colonial and semicolonial nations. For various reasons, the types and rates of development have varied throughout the history of mankind. But when capitalism enters by direct or indirect force, it takes over. It doesn’t take over everything but it influences the very direction of a country, which may mean a dependence on the mother country and usually results in greater poverty of the masses.
Meanwhile, there are fewer jobs in the advanced capitalist countries. You get larger percentages of unemployment.
HG: So imperialism comes about, in part, to find cheap labor to offset the high cost of labor in the capitalist nations. But as it developed, didn’t the shape of imperialism itself change?
HM: Yes. The first big change was the rise and spread of industrial capitalism in the western part of Europe, in the areas settled by people from western Europe such as the United States and Australia, and in Japan. But at this point the world is no longer completely “free,” as in “free for conquest.” The planet is no longer completely open for nations to go wherever they feel like because now when England seeks to expand its empire so do Germany and France, and other powers.
So the rich powers compete. For example, with the development of the steamship in the 1850s and 1860s Britain like every other nation suddenly found its ships antiquated. They had to hurry up and produce a lot of iron steamships. For a time Britain developed a virtual monopoly in shipbuilding that lasted almost until the outbreak of the First World War. Its share of world shipping tonnage grew from about a quarter in the 1840s to 40–50 percent from the 1850s up until the First World War. Nevertheless, in the new century the British lead in shipbuilding and shipping tonnage was cut down. Other nations such as Germany, the United States, France, and Japan began to catch up. There was a new level of competition, not just to produce steamships, but to secure places where steamships could carry trade.
The new question became, “What part of the world do you take over?” For example, Africa had formerly been “free.” Free for the capture of slaves, free for exploitation of the natural resources. But as the uneven development of the centers of capitalism reached new heights of competition, at the end of the nineteenth century a race developed to divide up Africa and other areas into colonies.
Occupation of foreign territories as colonies was a central part of merchant capitalism and the early stages of industrial capitalism, but in the early stages there were still large sections of globe that were not colonized. Although colonial conquest goes on from the fifteenth century if not earlier, and keeps on growing, there is a striking change in the square miles of territory colonized by the capitalist powers. And that jump occurs in the last quarter of the nineteenth century, along with the development of giant corporations and monopolies. During the late nineteenth century and early twentieth century there was a 300 percent increase in the acquisition of colonies. In the forty-five years after 1870, colonial powers took over an average 240,000 square miles each year, compared to an average of 83,000 square miles a year for the first seventy-five years of the nineteenth century.
HG: And it was this competition over territories which led to the First World War?
HM: Redivision of the world was surely a major motive in the First World War. But there were other factors that contributed to the war—a subject too long to explore at this time. I think that increasing competition for markets by monopolistic firms in the advanced capitalist countries was part of the picture. I would add the challenge to Britain’s hegemony. Britain’s rivals were not happy about London being the center of international financial markets and the pound sterling functioning as the dominant international currency.
HG: Let me jump forward. The competitive colonial order you are describing lasted through the Second World War, but after that conflict the era of literally owning colonies ended with the success of colonial independence movements. There was a whole new economic order as the United States emerged as the major world power.
HM: The process of decolonization raised a new problem for the advanced capitalist countries. It led to various forms of neocolonialism, where the powers influence and dominate the former colonies.
HG: And this control would be exercised through the World Bank and the International Monetary Fund?
HM: Yes, but these institutions are not alone, in the neocolonial game, in exercising influence and control. The advanced nations infest the financial systems of the periphery, giving aid and comfort to the ruling elites. They become partners in suppressing people’s movements aimed at changing the power structures and freeing countries from the imperialist network.
The World Bank was presumably designed to help underdeveloped countries develop their natural resources, obtain clean water, do good things that would give the peripheral countries a leg up. But in practice the bank acted to support internal private enterprises and multinational investors. It also contributed to the debt peonage of the third world. Keep in mind that the World Bank is largely financed by selling bonds to investors in the core countries. The World Bank must therefore collect interest and principle from the periphery.
The IMF was created with the Great Depression in mind. In those years, international trade and investment dropped precipitously, currency rates bobbed up and down, in part because of “beggar-thy-neighbor” practices. The thinking behind establishing the IMF was to eliminate wild fluctuations in balance of payments and currency exchange rates that could harm capitalist economies. But the approaches that may work for capitalism’s core countries only make things worse for those in the periphery. The very process of investing in the periphery produces interest, profits, and fees that need to be paid—in dollars—to foreign investors. When exports don’t generate enough dollars to fulfill the obligations to foreign investors as well as pay for needed imports, in steps the IMF as the debt collector. It forces structural changes in the country’s economy and then loans even more money—continuing and deepening debt peonage while making the people’s difficult living conditions even worse.
The designers of these institutions—New Dealers and other liberals—saw a world of peace and cooperation, presided over by the United States, arising in the period after the war. Their hopeful theorizing ignored the underlying reality of capitalism and its laws of motion, which would prevail outside the Eastern bloc. Imperialism was capitalism’s way of life: the rivalry between the leading capitalist countries would continue, the exploitation of the periphery would continue whether or not colonies achieved political independence.
HG: So the IMF and World Bank, whatever the reasons for their founding, moved in a direction of supporting advanced capitalism rather than overcoming underdevelopment in the developing nations.
HM: There was no way within the framework of capitalism to eliminate the exploitation of the periphery. Debt peonage could not be avoided. This was even more so under the conditions enforced by the IMF as it went about “rescuing” countries of the periphery in crisis. In fact the IMF is the debt repayment enforcer for the big banks of the West. And in this role, the IMF establishes conditions that lead to the renewal of borrowing from the centers of capitalism. The crises in the periphery reoccur in a vicious cycle. Money is lent by the IMF to pay back earlier debts, if—and only if—the country in crisis carries out onerous neoliberal practices. Of course, these practices lead to increasing poverty of the masses and a renewal of debt accumulation. The practices of the World Bank also add to both the imposition of neoliberal rules and worsening conditions of the masses.
These relationships led to the phenomena of increasing disparities between what we call the North—the more advanced industrial countries—and the South. Around 1400, there were differences between people, but basic conditions in the way people lived within a country were pretty much at the same level. There were lords of course, and there were masters of various kinds. But much depended upon the crops. If the crop failed, you didn’t eat. But with the integration of economies and the imposition of controls to help develop industry, there emerged a world in which there were very significant differences between the way some people live and the way others live. Things for five hundred years have been going in this direction, where most of the wealth is held in the hands of 10 or 20 percent of the population and 80 to 90 percent have what is left over. This isn’t just an accident.
And this disparity in and between countries is at the core of imperialism, part of the whole general system of capitalism and imperialism. It has been part of the development of imperialism from the start. But it keeps getting worse—20 percent of the world’s population lives in the poorest fifty countries, but they get less than 2 percent of the world’s income.
Yet it is also true that within the advanced countries, with the tremendous amount of wealth created, the difference between the rich and the poor kept getting greater and greater and greater. And this is a necessary part of capitalism’s functioning. Not “necessary” in the sense that it is good, but that it is a product. Creating disparities is the way it works. It has to work that way. I don’t mean that it is necessary that a CEO gets a hundred million dollars, but that capitalism works in such a way that there are sections of the population that live in misery, where children don’t have food, don’t have medical attention, don’t get a decent education. And this happens in the richest country in the world. We get richer and richer and with a section that gets poorer and poorer. The situation is such now that the richest thirteen thousand families in the United States earn more than the bottom twenty million families!
HG: Harry, while we talk, the United States is in the middle, and possibly near the end, of a war with Iraq. Is this current situation different from previous ones? Is the war with Iraq in some way unique, or a new turning?
HM: I don’t think it’s novel. South Africa was fought over and finally taken over by the British. Egypt was under British control, Morocco and Tunisia under French. There’s nothing new in that, in the fact of going out and fighting, taking over a country, killing off the people in the process.
I want to tell you something that was important to me. When the Encyclopedia Britannica was being rewritten I was asked to write an article on European expansion from 1763 to the present—an odd choice, 1763. I described, among other things, the scramble for Africa. I wrote about the intense fighting which ended up with the Berlin Conference, where they took out a ruler and said “Alright, this part belongs to you, this other country belongs to another, this country belongs to me.”
Little regard was paid to natural or tribal boundaries. In the history books and encyclopedias, the scramble for Africa is described as consisting of wars among the European powers. True enough, except that many of the conquests were made in battles with the African peoples. I made it my business to tell the whole story, identify by names the specific African tribes, coalitions, and kingdoms which fought the intruding powers—the Ashantis, the Fanti Confederation, the Opobo Kingdom, the Fulani, the Tauregs, the Mandingos, and so on. The Encyclopedia Britannica editors at first didn’t want to publish the names of the resisting peoples. Why? Because nowhere else in the encyclopedia are the names mentioned, so readers would not know what I was talking about. I replied that the editors should be ashamed of themselves for not identifying, and having articles on, the African people. That objection to my article was then overlooked.
Throughout this period of competition and struggle for colonial control there was a sort of a hierarchical structure within the advanced capitalist world. For example, the gold market was in London. The gold and silver that Spain and Portugal took from South America ended up in the vaults in England. Similarly, at the end of the nineteenth century the international commodity market, as well as the international financial market, centered on Britain. As I said before, eventually the competition between capitalist countries, the struggle for this kind of control, helped bring about the First World War. After two world wars, in 1945, most of the other capitalist countries were in very bad condition. They had to be rebuilt. Britain was especially hard hit, despite being one of the victors, and could no longer hold on to its empire.
And the United States, which had entered the war long after all the European nations, emerged as the strongest nation economically. We had the kind of machinery and the kind of industry which could produce ships overnight. In very short order battleships were produced, merchant ships were produced, as well as armory, artillery, guns, bullets, and airplanes in enormous numbers. So when the war ended there was no question that the United States was the strongest power in the world with the possible exception, as a military power, of Russia. Russia, with its socialist-led revolution and a centrally planned economy, though in many ways malformed, had played a very important role in defeating the Germans and had a powerful army and many tanks and artillery and airplanes and so on.
So there was a new direction after the war: the Cold War, which had a different logic which it would take too long to describe. In this early postwar period, in order to prevent future wars, there were meetings in San Francisco and conferences at Dumbarton Oaks to organize the United Nations. There was the formation of the IMF and the World Bank, as I said earlier.
As these international institutions were formed the United States played a dominant role. When the IMF was formed, for example, the votes you had depended upon your financial contribution. The United States, being the biggest contributor, had the last word—and with the World Bank too.
Throughout the Cold War period, the Soviet Union was seen as a potential threat. Whether they were or not is another question. But as far as the politics of the capitalist powers were concerned, the Soviet Union was the foe of the United States. If there was going to be a war, they felt it would be a war between Russia and the Western industrial powers. That opposition structured the postwar world. Then, after the decline of the Soviet Union, the United States became the unquestioned hegemonic power.
But even before the collapse of the Soviet Union, the United States played a central role. The idea that France should own Vietnam was supported by the United States: first by assistance to the French to keep that colony, and then by direct American action following the French defeat at Dienbienphu and subsequent withdrawal. The United States went to war to shoulder the responsibility of making it part of the U.S. empire, if you want to call it that. There were national liberation movements in Malaya. There were national liberation movements in Indonesia. In each one of these cases the United States stepped into the picture.
So the United States, as the leading power, became a hegemonic power following the end of British domination and the collapse of the old colonial empires. The expanded U.S. imperial role was in line with the logic of the development of its economy and its need for an enlarged global presence. As I said before, capitalism has to grow. There is an internal logic to the development of the American economy. As it grows the issue of imperialism—international competition and hierarchy—looms ever larger.
Part of the transformation that accompanied the rise of U.S. hegemony was that the center of international finance moved from Britain to the United States. The arrangement at Bretton Woods, the conference where the IMF and the World Bank were created, was that the only standard was the dollar. Nobody was to own gold except central banks, and even they could only transfer their gold into dollars. The dollar became the international currency. Before the First World War, if you were selling goods from Holland to Morocco for example, the invoices would be written in pounds sterling. After the Second World War the invoices were written in dollars. When OPEC organized, for example, and the petroleum producing countries set a price on oil, controlling their production in order to keep the price at a certain level, the oil could be paid for only in dollars.
To go back to the United States just after the Second World War: It had built up the largest productive capacity in the world, and in addition it didn’t have to rebuild its country. All the battles were fought in Europe, North Africa, the Pacific, and Asia, so nothing in the U.S. was affected in terms of the land or industry. It became the major source of machine tools, the source of many of the industrial products: If you wanted trucks or bridges or airplanes, you would turn to the United States. The U.S. used that dominance to extend its power into the third world, to take over as many markets as possible so that it became a hegemonic power, the hegemonic power. It’s been continuously struggling to maintain itself as such ever since.
And I think Iraq is simply a continuation of that movement towards imperial hegemony, probably in a more crucial form right now. But previously there was the Vietnam War; American soldiers have been to Lebanon; American soldiers have also invaded Panama and taken over Grenada, a little island. They attacked and embargoed Cuba and helped overthrow Allende in Chile. The United States has engaged in dozens of other interventions. The idea of the United States being the policemen of the world, being the nation in control, has been here ever since the end of the Second World War.
The United States has taken on the role of telling countries how they should run their business ever since then. The U.S. did it in Japan. They did it in Germany. In the Middle East, where there have been very strong national movements, those movements were de-emphasized and undercut by an emphasis on religion. I mean that there was U.S. antagonism to the nationalist movements and clear backing for Israel. This encouraged Islam, belief in Islam, the adherence to the Muslim religion, as the controlling determination of identity. The Americans manipulated things so that there were not nations in any real sense but there were religionists, organized around political Islam and its various divisions, such as the Shiites, the Sunnis, and so on.
These questions have now become intensified with the issue of Iraq. Iraq exists as a central part of the Middle East, the major source of the world’s oil. So the Iraq war is not a surprise either.
Let me mention a little fact about oil and its ownership, one I discovered long ago. In fact, I devised a table about this fact in The Age of Imperialism, over thirty years ago.
There was a revolution in Iran. The ruler of Iran, the Shah, was overthrown and a democratic government was formed. The head of that government was [Dr. Mohammad] Mossadegh. Here I have no secret information, it’s part of the public record: The CIA was involved fifty years ago in overthrowing Mosaddegh and bringing the Shah back as the ruler of Iran. In 1940, before Mosaddegh nationalized the oil industry, something like 70 percent of the oil reserves were controlled by British companies and about 30 percent by American companies. Comes the overthrow of Mosaddegh by the United States, so that Iran is in a sense part of the U.S. empire, and what do you know? Approximately 60 percent of the oil falls under the control of American firms as opposed to 30 percent controlled by the British (with other countries making up the difference).
And I bet you it’s going to happen in Iraq. There are many reasons for the Iraq war in their thinking and one of them is that there is a lot of oil in Iraq. A French company had a major deal there. The Italians and the Russians also had large contracts to develop the oil. We’ll see who will get those contracts now. And we’ll see how many new military bases the United States gets in the Middle East, Central Asia, and Africa.