The New Debt Colonies

Street art in Athens by
Street art in Athens by

We think the debt has to be seen from the standpoint of its origins. The origins of the debt arise from the origins of colonialism. Those who lend us money are the same who colonized us before. They are those who used to manage our states and economies.
– Thomas Sankara (1987)

God save us from the debt, and we shall be content.
– Simón Bolívar (1825)

Today we are witnessing the resurgence of an old phenomenon: the debt colony. A decade after the collapse the U.S. housing bubble and the onset of the worst capitalist crisis in living memory, governments around the world continue to bear the burden of historically unprecedented public debt loads. In some cases, most spectacularly in the peripheral countries of the Eurozone but also in a number of emerging markets, these mounting financial obligations have led to crippling sovereign debt crises – which have in turn impelled the dominant creditor powers to intervene aggressively on foreign bondholders’ behalf, imposing highly intrusive regimes of international financial supervision on distressed borrowers in order to ensure continued debt servicing. The fiscal autonomy of Greece and Puerto Rico, in particular, has now been abolished in all but name, although similar processes have long been afoot elsewhere as well.

This contemporary experience in turn carries strong historical echoes. A century and a half ago, Karl Marx already observed how the emergence of the national debt in early-modern Europe constituted one of the “most powerful levers of primitive accumulation,” leading to the “alienation of the state” by private financiers and “giving rise to stock exchange gambling and the modern bankocracy.” These dynamics intensified during the Age of Imperialism in the late 19th and early 20th centuries, when the export of European and U.S. capital to the newly independent countries of Latin America and the Mediterranean added an international dimension to this long-standing process of dispossession through debt. During this period, the dominant creditor powers regularly subjected distressed sovereign borrowers to external financial control – often under force of arms. The British invasion of Egypt in 1882, the German push to establish an International Financial Commission in Greece in 1898, and the appearance of European gunboats on the Venezuelan coast in 1902 are but some of the most prominent cases in point.

Today, such long-standing processes of financial subjugation continue in a new form – through what has euphemistically come to be known as “international crisis management.” Ever since the Mexican debt crisis of 1982, banks and bondholders in the wealthy creditor countries have increasingly come to rely on their own governments and international financial institutions like the IMF and World Bank to impose painful structural adjustment programs on crisis-stricken debtor countries in the developing world. Over the course of two decades, international creditors – private and official alike – went on to plunder the immense wealth of the Global South, from Argentina to Zaire, aggressively opening up local economies to foreign capital and restructuring them in line with the neoliberal prerogatives of the Washington Consensus. The result has been a vast flow of capital “upstream,” from public hands in the global periphery to private hands in the advanced capitalist core, with developing countries transferring an estimated $4.2 trillion in interest payments to their creditors in Europe and North America since 1982, far outstripping the official-sector development aid these countries received during the same period. 1

In the wake of the global financial crisis, these same methods have now come to be applied on a massive scale in the capitalist heartland itself. The result has not just been a new wave of “accumulation by dispossession,” but in some cases also the effective abolition of national sovereignty. When Greece’s fledgling Prime Minister Alexis Tsipras was forced into a humiliating capitulation to his European creditors in the summer of 2015, for instance, an anonymous diplomat from a Germany-allied country candidly described the terms of surrender as “akin to turning Greece into an economic protectorate.” 2 In his memoirs of his brief tenure as Greece’s finance minister, Yanis Varoufakis repeatedly denounces the creditors’ financial intimidation tactics as an example of “latter-day gunboat diplomacy.” When Poland’s foreign minister was asked for the reason behind his country’s refusal to join the euro, all he had to do was point south: “Greece is de facto a colony,” he explained, “We don’t want to repeat this scenario.”

These ongoing developments raise a number of important questions about the relationship between contemporary patterns in international crisis management and Europe and America’s long-standing history of financial imperialism. How different is our contemporary era really from the “era of gunboat diplomacy” in the late 19th and early 20th centuries, when the dominant creditor powers also regularly intervened in the debtors’ sovereign affairs to defend bondholder interests? What are the continuities and discontinuities between the two periods? And can the hotly debated and polemical notion of imperialism still serve as a useful analytical tool to help us make sense of the current conjuncture? If so, how far can the classical Marxist theories of the phenomenon take us in elucidating the asymmetric power relations at the heart of the contemporary global political economy – and what, if anything, can be done to revamp existing theoretical frameworks to better reflect the enduring relevance of imperialism in our time?

In what follows, I will argue that imperialism clearly remains an important factor in the early 21st century – even if the original Marxist accounts require extensive revision in light of the recent transformations of global capitalism. The lasting contribution of the classical theorists was to anchor their critiques of imperialism within a broader critique of political economy, highlighting the central role of finance in driving imperialist relations of domination. This, I argue, should remain the starting point for any contemporary analysis of imperialism. At the same time, however, the classical theories also suffered from a number of important limitations. Most consequentially, perhaps, they tended to emphasize the more overt manifestations of imperialist power (territorial conquest and military intervention) at the expense of its more subtle, structural dynamics (operating through the global financial system), which ended up blinding them to some of the underlying dependencies that later kept the asymmetric power relations between debtors and creditors in place even in the absence of territorial conquest or military intervention.

To better reflect the persistence of these more subtle dynamics of imperialist domination, I propose to approach the problem from a somewhat different angle, namely from the vantage point of “the new debt colonies” themselves. In the second half of this piece, I will briefly outline the contours of an alternative, state-theoretical approach to the study of imperialism, centering on the state’s structural dependence on foreign credit and investment. Such an approach would stress the ways in which global financial markets, international financial institutions and local comprador elites inside the debtor countries all act as important conveyors for the exercise of imperialist power, highlighting the limits of a narrowly state-centric politics of national liberation, which can at best replace one form of colonial domination (territorial dependence) with another (financial dependence), while at worst becoming a new source of oppression for the working classes of the newly independent state. Before further elaborating on these points, however, we will first need to review both the strengths and weaknesses of the original Marxist accounts.

The “Economic Taproot” of Imperialism

If the classical theories of imperialism had one strong point in common, it is the pride of place that all of them accorded to finance and international loans. The first major study to establish this connection actually came from the hand of a bourgeois liberal theorist, J. A. Hobson, whose work went on to inspire Lenin’s short treatise on the subject. In Imperialism: A Study (1902), Hobson sought to uncover what he called “the economic taproot” behind the drive towards territorial expansion and inter-imperialist conflict and competition. 3  His basic thesis was that the rise of monopoly capital had concentrated profits into ever fewer hands, leading to increased savings and chronic underconsumption. In the absence of profitable investment opportunities at home, capitalists began to look for other outlets for their excess savings, leading to the export of capital abroad. This in turn generated strong pressures for the leading capitalist states to annex foreign territories in order to pry open new markets and safeguard existing investments.

In this scheme, Hobson ascribed a most prominent role to private financiers as “the governors of the engine” of imperialism, observing how “these great businesses – banking, broking, bill discounting, loan floating, company promoting – form the central ganglion of international capitalism.” Through their high degree of internal organization and close personal interconnections, bankers and investors are uniquely capable of exerting pressure on their home governments to pursue an imperialist policy abroad. Violence and compulsion thus become part and parcel of the process of economic expansion, as the state embraces a “spirited foreign policy dictated by bond-holders.” The political analysis behind these claims, however, remained extremely crude, hinging on an ill-defined conspiracy theory with strong anti-Semitic overtones. Finance, for Hobson, was simply a “parasitical” special interest “controlled, so far as Europe is concerned, chiefly by men of a single and peculiar race, who have behind them many centuries of financial experience [and who] are in a unique position to control the policy of nations.” 4 This troubling view, widespread even in progressive circles at the time, foreshadowed some of the later Nazi tropes about the all-powerful Jewish financier.

The classical Marxist theorists, by contrast, sought a much more systematic understanding of the specifically capitalist logic of imperialism. In The Accumulation of Capital (1913), Rosa Luxemburg developed a particularly ambitious theoretical argument to this end. Her analysis showed some similarities to Hobson’s, in the sense that she ultimately located the “economic taproot” of territorial expansionism, international rivalry, and capitalist militarism in endemic underconsumption in the home market. Unlike Hobson, however, she based her analysis on what she thought was a flaw in Marx’s original scheme of expanded reproduction, locating the reasons for insufficient demand not in excess savings on the part of the monopolists, but in the increasing exploitation of the working classes in the advanced capitalist societies, a tendency that precluded the owners of capital from realizing their surplus value at home and ultimately compelled them to search for other sources of demand “outside” of the capitalist circulation process. As a result, Luxemburg believed, capitalism depends on the constant invasion, subjugation and exploitation of its non-capitalist environment to secure its own survival.

This reading did not really stand the test of time. As Harvey notes, “few would now accept Luxemburg’s theory of underconsumption as the explanation of crises.” 5 Nevertheless, the theoretical and historical analysis presented by Luxemburg made a number of significant and enduring contributions to our contemporary understanding of imperialism. In his own work, Harvey has famously revived Luxemburg’s emphasis on the “dual character” of capital accumulation, which does not only revolve around the economic processes of “the commodity market and the place where surplus value is produced – the factory, the mine, the agricultural estate,” but also “concerns the relations between capitalism and the non-capitalist modes of production.” For Luxemburg, the predominant methods of capital accumulation pertaining to this latter domain are “colonial policy, an international loan system…and war.” Unlike the relatively peaceful process of production and exchange, the latter relations are openly characterized by “force, fraud, oppression, looting,” so that “it requires an effort to discover within this tangle of political violence and contests of power the stern laws of the economic process.” 6

While Luxemburg did not elaborate on the role of finance as such, she did hone in on the importance of international loans and the ways in which sovereign debt and foreign direct investments can quickly become instruments of colonial subjugation. “In the Imperialist Era,” she writes, “the foreign loan played an outstanding part as a means for young capitalist states to acquire independence.” This dependence on foreign credit, however, had a contradictory effect on the newly independent countries: “Though foreign loans are indispensable for the emancipation of the rising capitalist states,” she keenly observed, “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.” 7

The Rule of Finance Capital

Luxemburg’s insights on the asymmetric power relations at the heart of the international credit system clearly continue to resonate today. It was left to the Austro-Marxian economist Rudolf Hilferding, however, to develop the most systematic analysis of the intimate connections between money, credit, banking, empire, and war. Hailed at the time as a landmark contribution to Marxist theory, Hilferding’s classic work – Finance Capital: A Study of the Latest Phase of Capitalist Development (1910) – set out to uncover the deeper dynamics behind the concentration and centralization of capital, the tendency towards the formation of monopolies, trusts and cartels, the growing dependence of firms on credit, the rising importance of the banks, the ever-closer proximity between bank capital and industrial capital, the cartels’ vocal demands for state intervention, and the ways in which these dynamics in turn impacted the structure of the capitalist economy, leading to monopolist demands for economic protectionism, feeding the export of capital abroad, and driving the militaristic foreign policy of imperialism that was associated with it. “The most characteristic features of ‘modern’ capitalism,” he wrote,

… are those processes of concentration which, on the one hand “eliminate free competition” through the formation of cartels and trusts, and on the other, bring bank and industrial capital into an ever more intimate relationship. Through this relationship capital assumes the form of finance capital, its supreme and most abstract expression. … No understanding of present-day economic tendencies, and hence no kind of scientific economics or politics, is possible without a knowledge of the laws and functioning of finance capital. 8

As bank capital becomes more concentrated and the economy ever more dependent on credit, Hilferding noted, “the power of the banks increases and they become founders and eventually rulers of industry, whose profits they seize for themselves as finance capital.” 9 In the process, “the specific character of capital is obliterated,” and finance capital “now appears as a unitary power which exercises sovereign sway over the life process of society.” The “latest phase” of capitalist development therefore endows private bankers with a highly concentrated form of economic and political power, which they actively mobilize in order to push the state to erect protective barriers against foreign competitors and rival cartels. 10

At the same time, the accumulation of excess monopoly profits at home leads to a search for lucrative investment opportunities abroad, resulting in foreign investments, “which extends the economic region and the scale of production,” and in turn “requires the support and active intervention of the state, in acquiring and maintaining control over the new economic areas.” 11 All of this leads to a dramatic change in the relationship of the capitalist class to state power, as the big banks that dominate national industry begin to actively sponsor a foreign policy of imperialism. Finance capital, Hilferding notes, “does not want freedom, but domination”:

It needs the state which can guarantee its domestic market through a protective tariff policy and facilitate the conquest of foreign markets. It needs a politically powerful state which does not have to take account of the conflicting interests of other states in its commercial policy. It needs also a strong state which will ensure respect for the interest of finance capital abroad, and use its political power to extort advantageous supply contracts and trade agreements from smaller states; a state which can intervene in every corner of the globe and transform the whole world into a sphere of investment for its own finance capital. 12

The competition for colonial acquisitions and the defense of existing territories subsequently leads to growing tensions between the capitalist powers themselves, increasing the threat of an all-out imperialist war. This point was stated even more forcefully by Nikolai Bukharin, who considered global conflict to be an inevitable outgrowth of the ascendancy of finance capital. In his Imperialism and World Economy (1918), the Bolshevik theorist set out to take Hilferding’s analysis to the international level, developing what could be considered an early account of financial globalization. 13  Bukharin reiterated that “world finance capitalism and the internationally organized domination of the banks are one of the undeniable facts of economic reality,” and he stressed how the concentration and centralization of capital had produced a situation in which national economies had been transformed “into one gigantic combined enterprise under the tutelage of the financial kings and the capitalist state.” 14

Lenin, for his part, mostly reproduced these prior insights, and did not really make any important theoretical advances within the ambit of the classical debate. Nevertheless, his widely-cited pamphlet – Imperialism: The Highest Stage of Capitalism (1917) – did help popularize Hobson’s analysis of capital export and Hilferding’s notion of finance capital, explaining in simple terms how the combination of the two had led to the violent subjugation of the whole world to the dictatorship of a “financial oligarchy.” In his terse polemical style, Lenin openly railed against the “financial marauders” whose “parasitism” – a term he adopted from Hobson – had led to a “world system of colonial repression,” involving the “financial strangulation of the overwhelming majority of the people of the world by a handful of ‘advanced countries.’” 15 As finance capital “spreads its net over all countries,” Lenin noted, it divides the world “into a handful of usurer states on the one side, and a vast majority of debtor states on the other.” 16 It is precisely here, in the asymmetric power relations between sovereign debtors and their foreign creditors, that we find both some of the most striking similarities and some of the most important differences between the classical imperialism of Lenin’s time and the “new debt colonialism” of today.

Sovereign Debt and Default

During the classical imperialist era, the export of capital predominantly came in two forms: that of international loans to foreign governments (in the form of bond finance), and that of foreign direct investments (in the form of fixed capital). In the early days of global capital markets, the sale of government bonds made up the bulk of international transactions. From the 1820s onwards, as most of Latin America gained independence, powerful London-based merchant banks like the House of Rothschild and the House of Barings became active intermediaries in this process of international lending to the newly independent peripheral borrowers, underwriting the obligations of creditworthy foreign governments by stamping the latter’s bonds with their family seal and undertaking to sell these debt securities to retail investors on the London Stock Exchange. Later, from the 1880s onwards, the merchant banks increasingly began to turn towards the mobilization of large sums of capital for direct foreign investments – especially fixed capital in mining, agriculture and the construction of railways, canals, telegraph lines, etc.

As in other domains of the capitalist economy, the watchword in this rapidly expanding world of high finance was monopoly power. Throughout the so-called Pax Britannica (1820–1914), the total market share for sovereign bond issues underwritten by the three biggest intermediary banks in London never fell below 50 percent. In the first major international lending boom of the 1820s, the Rothschild and Baring banks alone initiated over half of all emerging market loans, with “the House of Rothschild surpass[ing] all other underwriters in terms of market share, capital stock, and performance.” 17 A handful of powerful financiers thus effectively held sway over the credit access of a vast array of developing country governments, allowing these private bankers to set the terms of borrowing and thereby indirectly control the conditions under which the newly independent states sought to integrate themselves into the capitalist world economy.

In the early 20th century, as the United States took over sovereign lending to its Latin American and Caribbean neighbors from the British, the London-based financiers were gradually displaced by powerful U.S. banking houses like the Rockefellers and J. P. Morgan. Just as their British counterparts, these American “kings of finance” – or “robber barons” as they came to be known – generally did not hold foreign government bonds themselves; they simply helped “float” them, organizing their sale on the New York Stock Exchange. The actual bondholders were mostly small investors, whose dispersed nature made them much more prone to coordination problems and thus considerably less powerful than the monopolistic underwriting banks.

As a result of the speculative nature of bond finance and the relative powerlessness of small bondholders, international lending to foreign governments – the most important form of capital export for most of this period – tended to expose retail investors to a recurring risk of bankruptcy or repudiation, and sovereign default remained a widespread phenomenon throughout this period. In the first international debt crisis of the 1820s, virtually all of the newly independent Latin American borrowers and several Mediterranean countries suspended payments on their foreign debts, maintaining unilateral moratoriums on interest service that sometimes extended for up to three decades (Greece’s first default of 1826 even lasted over half a century!). The economic historian Carlos Marichal writes that “default was not only inevitable but also virtually irreversible” during the 1820s: “Despite repeated efforts by envoys of European bondholders to recover their monies, all governments (with the exception of Brazil) systematically refused to resume payments.” 18

During the crisis of the 1870s, a similar wave of sovereign defaults crippled many a hapless retail investor on the London Stock Exchange. A large number of Latin American and European governments either suspended payments or reduced interest service on their outstanding obligations, leaving 54 percent of bonds issued in London in arrears by 1883. 19 Further sovereign bankruptcies followed during the crisis of the 1890s, with Argentina’s infamous default nearly bringing down the mighty Barings Bank of London and triggering the Wall Street Panic of 1893. Greece defaulted in the subsequent financial turmoil, as did Portugal, which unilaterally reduced its interest service, while Spain and Serbia both teetered on the brink of insolvency. Several smaller countries in Latin America and the Caribbean also suspended payments. 20

Creditor State Intervention

How, then, did the imperialist powers respond to these recurring international debt crises and the regular episodes of sovereign default they engendered? Beside exerting diplomatic pressure on the debtor states’ governments, which was the least costly and therefore favored response, creditor states could ultimately resort to three different types of imperialist intervention to safeguard the foreign investments of their national subjects: international financial control; outright military occupation; and gunboat diplomacy. While such creditor state intervention was by no means universal during the era of classical imperialism – indeed, in most cases sovereign defaults actually went unpunished – one study has found that defaulting governments faced at least a 30 percent chance of being subjected to such “super-sanctions.” 21

Prominent examples of the first type of creditor invention include the establishment of the International Financial Commission in Greece, as well as its predecessors in Turkey (the Ottoman Public Debt Administration) and Egypt (the Caisse de la Dette Publique), which were analyzed at length by Rosa Luxemburg in her chapter on international loans in The Accumulation of Capital. In each of these cases, the representatives of creditor states, issuing banks and/or private bondholders assumed direct administrative control over tax collection and public debt management in order to ensure maximum returns for European investors. The Ottoman Public Debt Administration, for instance, controlled about a third of the Ottoman Empire’s total state revenues between 1881 and 1914. 22 The state tobacco monopoly, one of the Empire’s main sources of revenue, was farmed out to a company founded by a consortium of European creditor banks. As Edgar Vincent, representative of British and Dutch bondholders on the OPDA council, boasted: “there is no instance in which powers so extended have been granted to a foreign organization in a sovereign state.” 23

The second type of imperialist intervention – outright military occupation – was less common but nonetheless an important ultimate recourse for the leading creditor powers, especially Britain and France. In Egypt, for instance, the Franco-British regime of financial control enforced punctual debt service for some time, but “the payment had virtually to be flogged out of the impoverished peasantry.” 24 The resultant popular discontent fed into the ‘Urabi revolt of 1879-82, which culminated in a bloody anti-imperialist riot in Alexandria in 1882 in which several British subjects were killed. In response, Britain summarily invaded Egypt and incorporated the former Ottoman province as a protectorate into its own Empire. While historians have since pointed out that bondholder interests were by no means the only consideration – the need to secure access to the Suez Canal and intimidate the budding nationalist movement in Ireland also featuring into the decision to intervene – the Egyptian debt crisis did provide a useful pretext for the British government to expand its sphere of influence in the eastern Mediterranean and establish control over the former crown jewel of the Ottoman Empire.

Finally, the third type of creditor intervention – gunboat diplomacy – involved the use of the imperialist powers’ maritime might in order to compel non-compliant borrowers to repay. The most prominent example of this method was undoubtedly the creditor response to the Venezuelan crisis of 1902–03, during which the British, German, and Italian governments answered President Cipriano Castro’s refusal to honor his foreign obligations to European investors by dispatching their gunboats, blockading Venezuela’s main ports, shelling its naval defenses, and occupying its custom houses to exact compensation for damages done during the preceding revolution and civil war. After several months of mounting international pressure, Castro finally relented and agreed to settle with his foreign claimants at The Hague Tribunal.

This European show of force in Venezuela famously led to the promulgation of the Roosevelt corollary to the Monroe doctrine, in which the U.S. government claimed for itself a monopoly on the enforcement of foreign debt contracts in the Western hemisphere, effectively assuming the role of an “international police power” in its own “backyard.” This move was aimed specifically at forestalling further European interventions in the region, which the U.S. government feared might disadvantage American investors vis-à-vis their European counterparts. The Roosevelt Corollary thus represents a striking example of the centrality of financial interests – and of sovereign debt enforcement more specifically – in the competitive games between being played out between the imperialist powers around the turn of the 20th century.

Latter-Day Gunboat Diplomacy?

How do these historical patterns of creditor intervention in sovereign debt crises – the establishment of international financial control, foreign occupation and gunboat diplomacy – compare to those of the neoliberal period? First of all, it is clear that creditors’ enforcement methods have evolved in a number of important respects, shifting from a reliance on the aforementioned “super-sanctions” towards less overt forms of financial subjugation that have come to be known euphemistically under the rubric of “international crisis management.” In this respect, Varoufakis’ polemical invocation of the Troika’s “latter-day gunboat diplomacy” actually misses the mark in analytical terms, for it is precisely the absence of military coercion that is the most striking feature of the contemporary turn towards debtor compliance.

Of course this is not to say that the use of force as such is no longer an important aspect of Western imperialism; just consider the U.S.-led wars in Iraq and Afghanistan, the NATO interventions in the former Yugoslavia and Libya, or the many proxy conflicts currently being played out from Syria and the Crimea to the Korean peninsula. There is no doubt, either, that the overwhelming firepower and worldwide reach of the U.S. military and intelligence services remain foundational to the United States’ status as the world’s only real superpower: from its 800+ foreign military bases to its illicit CIA detention centers, and from the hundreds of thousands of active duty troops stationed in nearly 150 foreign countries to its globally mobile fleet of aircraft carriers and remote-controlled drones, the United States’ historically unrivaled military might clearly remains the ultimate foundation of its global imperialist aspirations.

When it comes to international finance, however, the enforcement of cross-border debt contracts today is a remarkably “peaceful” affair, generally working in much subtler ways than in the classical imperialist era. The real continuity in terms of imperialist methods lies not in the creditors’ use of “latter-day gunboats,” but in their successful institutionalization of international financial control. In fact, one could make a plausible case that the Ottoman Public Debt Administration – or its 19th-century counterparts in countries like Egypt, Tunisia, Serbia, Greece and China – was an early forerunner of the contemporary IMF Stand-By Arrangement and World Bank Structural Adjustment Program.

In a piece on “the colonial origins of the Greek bailout,” historian Jamie Martin points out that the resemblance is more than just metaphorical. “The first time that an international organization oversaw a program of austerity designed to win the confidence of foreign creditors,” he writes, referring to Austria’s experience with hyperinflation and financial instability in the 1921, “it was precisely the experience of foreign financial control in Egypt, and in other ‘debt colonies’ like it, that provided a model for how that program should be designed.” 25 In the Austrian case, the risk of financial contagion towards the main European creditor countries eventually moved the League of Nations to intervene, setting out to establish a form of external supervision over the Austrian finances. As the League’s technocratic officials began cobbling together a program of economic stabilization, they looked to the only previous experience that Western governments had in administering the finances of a crisis-stricken debtor state: that of international financial control in (semi-)colonial countries like Turkey, Egypt, and Greece.

In his research, Martin has found that “League officials studied these mechanisms of debt enforcement and used them as blueprints for Austria.” This interwar experience in Central Europe in turn “had a long afterlife, providing an important source of experience and expertise for the International Monetary Fund” that was established after World War II. 26 More than anything else, it was the creation of the IMF – and, more recently, its radical neoliberalization during the international debt crisis of the 1980s – that finally served to entrench the defense of creditor interests at the international institutional level, providing an extremely effective backstop to the looming threat of sovereign default. If, today, a foreign government suddenly enters into stormy waters, international financial intervention is virtually guaranteed – anywhere, anytime – in the form of an IMF Stand-By Arrangement, or an emergency bailout loan under strict policy conditionality geared towards keeping the distressed borrower solvent while squeezing out the maximum amount of domestic revenue for foreign debt servicing.

Limits of the Classical Theories

The neoliberal era therefore shows both a set of striking similarities to and a number of important differences from the classical imperialist era. Just as a century ago, contemporary capitalism is fundamentally characterized by the ascendancy of finance and the increasingly concentrated and centralized nature of international credit markets. Unlike in Hilferding’s time, however, this contemporary form of financialization has not led to the type of close permeation with industry that the original concept of “finance capital” was meant to capture. Bankers and industrialists also have not formed the kind of formal trusts and cartels that characterized the U.S. and German economies of the late 19th and early 20th centuries. Despite the active participation of several Goldman Sachs alumni in the Trump administration, Wall Street has also opposed the type of protectionist measures that predominated in the pre- and interwar period.

Most importantly, however, the rise of finance today has not led to any explicit “partitioning” of foreign markets or foreign territories by the dominant capitalist powers. Indeed, notwithstanding a few prominent but isolated exceptions, military occupation and the formal incorporation of foreign territories into the metropolitan heartland have largely ceased to be important factors in contemporary imperialism. On this score, Hardt and Negri were not entirely wrong to identify a more general, if still uneven trend towards the de-territorialization of Empire in recent decades – even if they clearly overstated their argument about the unravelling of the nation-state. 27 In The New Imperialism, David Harvey – building on the work of Giovanni Arrighi – similarly emphasizes the growing importance of a specifically capitalist logic of power; one that fundamentally consists of the “molecular” or “capillary” processes of capital flow, which he explicitly opposes to the territorial logic of power that underpinned the old imperialism.

Unsurprisingly, perhaps, the classical theorists largely failed to foresee these developments. In fact, with the benefit of hindsight, we can identify at least two general limits to the original Marxist accounts of imperialism. First, they generally stressed the more overt and “instrumentalist” face of the phenomenon – notably the use of military force and the drive towards territorial conquest – at the expense of its more subtle structural manifestations. The failure to consider that the international politics of dispossession might also operate through less visible but arguably even more powerful market-based or institutional mechanisms left the classical Marxist theories ill-equipped to account for the rising importance of these less visible forms of imperialist power in the postcolonial era. In this light, we clearly need to revamp our theoretical frameworks to be able capture the somewhat less obvious but much more deeply entrenched logic of financial subjugation under neoliberalism.

Today, with the resurrection of highly concentrated global financial markets and the increasingly important role of central banks, regional organizations and international financial institutions in the management of sovereign debt crises, the “non-violent” enforcement mechanisms of market discipline and conditional emergency lending have become much stronger and much more important than ever before. In this light, Harvey is right to argue that outright military interventions are ultimately but “the tip of the imperialist iceberg.” 28 Today, the creditors’ preferred outcome of full debt repayment is achieved much more effectively than it ever was during the classical imperialist era, without any of the associated saber-rattling. Indeed, there has been a striking decline in the incidence of non-payment during the neoliberal era, with the share of world public debt in a state of default falling to a historic low of 0.2 percent between 2010 and 2015, even as the global financial crisis shook the public finances of the advanced capitalist states to their very core and brought the Eurozone perilously close to disintegration.

The second important limit to the classical theories was their apparent inability to recognize the possibility of a new phase of capitalist development beyond classical imperialism. The reason for this seems to be that Luxemburg, Hilferding, Bukharin and Lenin were all very keen to prove that early 20th-century capitalism, beset on all sides by debilitating internal contradictions and insuperable crisis tendencies, was on its last legs, and that imperialism represented its final convulsions. The system’s steady demise during this “moribund” monopolist phase would prepare the ground for a proletarian social revolution, which, when combined with the conscious action of the working class, would ultimately lead to the establishment of socialism. Each of the classical theorists thus proposed their own specific analysis of crisis formation in order to account for the prospect of capitalist collapse, which seemed to them increasingly likely. The trick was simply to identify the underlying sources of this decadence (underconsumption in Luxemburg, overproduction in Bukharin, disproportionality in Hilferding) and thereby prove that the historical process of capitalist development had finally culminated in its highest stage, and that the working classes of Europe now stood on the eve of social revolution.

It was precisely here that the classical Marxist readings of imperialism reached their most important outer limits. By rooting their analyses firmly within an overly linear crisis-theoretical framework that considered imperialism principally from the perspective of the old capitalist states and imperialist powers themselves, they ended up underestimating not only global capitalism’s prospects for renewal, and hence its capacity to regenerate itself under the aegis of a new imperial superpower after the “European civil war” of 1914–45, but also the enduring nature of the underlying relations of domination between the advanced capitalist core and the emerging global periphery. As Thomas Sankara so powerfully pointed out during the Third World debt crisis of the 1980s, these asymmetric power relations continue to bedevil the postcolonial states that emerged from the anti-imperialist struggles of the 20th century.

Anchoring our thinking of imperialism along another subterranean tradition, which conceives of the phenomenon not from the perspective of the imperialist state, by way of a theory of crisis formation and inevitable capitalist collapse, but rather from the perspective of the postcolonial state itself, by way of a theory of state finance and the power of capital, may help us avoid some of these conceptual aporias and point towards a more effective anti-imperialist politics; one that stops us from conflating struggles for emancipation and liberation with a particular state or government, and that allows us instead to conceive of imperialism as a set of structural dependencies and asymmetric power relations between states that are intermediated in complex ways by the “de-territorial” logic of global financial markets; the active financial interventionism of creditors states, central banks and international organizations; and the bridging role of opportunistic comprador elites inside the debtor countries themselves.

Imperialism and the State

In his introduction to the 2011 edition of Hobson’s Imperialism: A Study, Nathaniel Mehr rightly points out the irony of the fact that “some of the most important components of the modern imperialist structure…take the form of formally consensual international agreements.” 29 This raises the question why so many postcolonial and peripheral states would “consensually” sign up to international agreements that actively undermine their national sovereignty and economic autonomy. The short answer is that many of these agreements were concluded under economic duress, in the context of a highly asymmetric global power structure, and were often actively sponsored by local elites inside these developing countries themselves; elites who, unlike most of their working-class compatriots, often stood to benefit from deeper economic integration into the capitalist world market. The neoliberal reforms of the Washington Consensus, for instance, were largely imposed by the U.S.-dominated Bretton Woods institutions in the context of the international debt crises of the 1980s and 1990s, with the active collusion of local elites.

The unsevered umbilical cord that leaves large swathes of the Global South economically reliant on their old colonial powers, even after formally attaining national independence, is the structural dependence of these peripheral states on foreign credit and investment, which has long been provided to them by private banks, international investors and financial institutions in the advanced capitalist countries. Subjecting the nature of this structural dependence to closer theoretical and empirical scrutiny may therefore allow us to approach the problems faced by “the new debt colonies” from a somewhat different angle, enabling us to better understand the more subtle contemporary forms of financial subjugation operating at the structural and institutional level that serve to reproduce these deeply entrenched international power asymmetries over time, even in the absence of territorial control or outright military intervention.

An inquiry into this dependence on foreign credit and investment ultimately leads us back to the problem of the capitalist state. Unfortunately, since Marx did not live to write the book on the state that he had originally envisioned as part of his six-volume outline for Capital, and since post-war Marxist state theory – both in Miliband’s “instrumentalist” approach and in Poulantzas’ “structuralist” framework – generally skipped over the key question of public finance, there remains a substantial gap in Marxist theorizing when it comes to the centrality of the state-finance nexus to the reproduction of capitalist and imperialist power relations more generally. Nevertheless, Marx himself did leave a number of scattered references on the state, especially in his treatment of primitive accumulation in Volume I of Capital, that may provide us with a useful starting point for a state-theoretical approach to the study of imperialism today.

The first point to note is that, for Marx, the phenomena of colonialism and the public debt were already intricately intertwined as two of the principal levers of primitive accumulation that helped set in motion the process of capitalist development. In his chapter on “The Genesis of the Industrial Capitalist,” Marx demonstrates how the former “ripened trade and navigation as in a hot house,” while the latter led to “the alienation of the state” and gave rise to an “aristocracy of finance” that commanded a great deal of political power. 30 Colonialism and the public debt, then, were two of the central nodes in the expanding web of capitalist control, without which there would have been no capitalist trade or capitalist finance. It is precisely the subjugation of the Global South to the emerging capitalist states of Europe, and the simultaneous subjugation of those European states to their own private financiers, that – along with the subjugation of peasants, women, slaves and non-human nature – laid the foundations for the development of modern capitalist industry, long before the rise of the factory system and the urban proletariat.

The Structural Dependence of the State

But, and this is the second key point, the foundational process of “primitive accumulation” cannot simply be confined to a distant pre-capitalist past. As Rosa Luxemburg so importantly emphasized in The Accumulation of Capital, “this process is still going on.” 31 David Harvey, of course, famously revived this observation by replacing Marx’s “so-called primitive accumulation” with the concept of “accumulation by dispossession,” which has become increasingly important with the rise of neoliberalism and has been foundational to the new imperialism of the post-1973 period. Silvia Federici makes a very similar point in her work on the new enclosures of common farmlands in West Africa through the World Bank’s structural adjustment programs during the Third World debt crisis of the 1980s. Seen from this perspective, the national debt remains one of the principal levers of capitalist dispossession, even more so in the neoliberal era, which has been characterized by the unleashing of global finance and rising levels of public debt.

In one of the few Marxist treatments of public finance, The Fiscal Crisis of the State (1973), James O’Connor usefully highlighted the contradictory nature of the system of government loans, at once enabling and constraining state authority. On the one hand, O’Connor pointed out, public credit endows the treasury with spending power that it would not otherwise have had, while on the other it renders the state increasingly dependent on a narrow subgroup of wealthy financiers who command sufficient capital be able to advance the requisite funds. 32 Observing the same paradox, Ernest Mandel referred to the public debt as “the golden chains of capital,” tying the state to the big banks and vice versa:

No government could last more than a month without having to knock on the door of the banks in order to pay its current expenses. If the banks were to refuse, the government would go bankrupt. The origins of this phenomenon are twofold. Taxes don’t enter the coffers every day; receipts are concentrated in one period of the year while expenses are continuous. That is how the short-term public debt arises … But there is another problem – a much more important one. All modern capitalist states spend more than they receive. That is the long-term public debt for which banks and other financial establishments can most easily advance money, at heavy interest. Therein lies a direct and immediate connection, a daily link, between the state and big business. 33

All capitalist states, in the end, are structurally dependent on the provision of private credit to be able to reproduce themselves and carry out their key social, political and economic functions over time. Without access to credit, for instance, states would historically not have been able to raise armies and wage war as effectively as they did; indeed, the capacity to borrow large sums of money at affordable interest rates was foundational to the emergence of professional armies and modern warfare, which in turn were foundational to the competitive advantage and colonial ventures of the emerging capitalist states. Nor would contemporary governments have been able to engage in the type of Keynesian deficit spending that underpinned the rapid growth of the postwar period and that allowed for the creation of complex bureaucratic welfare states, where public expenditures do not always coincide with tax collection. Access to credit, then, allows not only for “temporal smoothing” between alternating periods of expenditure and income, but also enables the state to engage in more long-term public investments – in areas such as infrastructure and education – that do not yield immediate returns and for which the state does not currently have sufficient resources on hand.

The obverse side of the coin, however, is that a rising public debt tends to constrain the state’s relative autonomy from its private financiers, imposing certain limits on the room for maneuver available to government. In the case of the advanced capitalist states, this dependence is mostly on their own creditor class, as the lion’s share of their national debt tends to be held domestically. In the case of the younger capitalist states, however, where financial markets are not as well developed, this dependence has long tended to be on foreign creditors, adding an additional layer of international dependence that forms the bedrock of the asymmetric power relations between creditor states and debtor states in the global political economy. It is this structural dependence on foreign sources of credit that compels peripheral borrowers to honor their international obligations and live up to the letter of their financial commitments, lest they suffer the crippling economic consequences of a complete cut-off of foreign financing, in the absence of which their prospects of economic development would be severely constrained.

Of course, there are many more layers of complexity to be considered here – most importantly, we have not even begun to broach the crucial questions of domestic class relations and the comprador phenomenon inside the postcolonial and peripheral debtor countries themselves, which continue to be key factors behind the international politics of dispossession today. The main point, however, should be clear: there are good reasons to approach some of the contemporary problems suffered by the “new debt colonies” from a state-theoretical perspective. Only by taking a closer look at the more subtle forms of creditor power that are exerted through the debtors’ acute dependence on global financial markets and international financial institutions can we begin to understand the striking contrast between, for instance, Greece’s repeated defaults during the era of gunboat diplomacy, and its firm insistence on full debt servicing today.

Beyond the Politics of National Liberation

This, then, would appear to be the crux of financial imperialism during the neoliberal era. It is ultimately the dependence of postcolonial and peripheral states on foreign credit and investment – a dependence that has grown increasingly acute with the globalization and financialization of the capitalist world economy since the 1980s – that endows the big banks, foreign investors and financial institutions with immense structural power over their vulnerable sovereign borrowers. Under conditions of economic duress, these foreign creditors can push through even the most brutally exploitative austerity measures, neoliberal reforms and privatization programs – ensuring full repayment for creditors while prying open new markets for global capital – without so much as a hint of physical violence. For the debtor countries, the alternative is to face the debilitating consequences of a foreign credit embargo and capital strike, which – as we saw in the wake of Greece’s anti-austerity referendum in the summer of 2015 – would risk crippling domestic industries and have devastating knock-on effects on the national economy.

In short, the explosive power of financial imperialism today resides not in the gun turrets of the creditors’ war ships, but in the investment portfolios of the powerful Wall Street banks and the Excel spreadsheets of the odorless technocrats charged with administering fiscal austerity and international financial control. The classical theorists of imperialism were therefore wrong to believe that finance capital, as Hilferding put it, marked “the climax of the dictatorship of the magnates of capital.” 34 Speaking purely from their own historical vantage point, this observation made sense. But the classical theorists had no idea what was coming. Today, the structural power of finance has reached previously unimaginable heights. If national liberation – i.e., the push for formal independence through the creation of a new sovereign state – still seemed to offer a way out of the territorial domination of the imperialist powers in Lenin’s time, it clearly no longer does so today. The logic of imperialist power and the methods of financial subjugation have changed. So must the struggles against it.

The political upshot of all this is that the left urgently needs to stop conflating struggles for popular emancipation and national liberation with a particular state or government. In most cases, with the notable exception of occupied territories like Palestine and Kurdistan, the enemy today is no longer a single colonial power, but a much vaster complex of structural dependencies and asymmetric power relations – one that is intermediated by the globalized logic of financial markets, the unaccountable rule of central bankers, the disciplinary role of international financial institutions, and the bridging function fulfilled by local elites inside the dependent peripheral states themselves. This means the left will need to find ways to articulate new strategic frameworks and political objectives that, while fully supporting the right to self-determination for oppressed peoples, must aim to move beyond the state-centric logic of national liberation that animated most anti-imperialist independence struggles of the recent past.

For instance, while the American left should unequivocally defend Puerto Ricans’ right to self-determination, it also needs to understand that statehood alone will not help the island’s inhabitants overcome their continued economic dependence on U.S. capital. Similarly, Greece’s problems will not be resolved simply by leaving the eurozone; the real problem lies in the fact that the country continues to depend on its European creditors and international investors to keep its own government and banks going. In the absence of foreign credit, liquidity and investment, Greek capitalism would not be able to reproduce itself for long. Similarly, the real problem facing Catalonia today is not central rule from Madrid so much as decentralized rule through international financial markets and an entirely unaccountable central bank. It was not the Spanish army that crushed the Catalan push for independence this time around, even if there was plenty of abhorrent police violence to go around. What really killed the Catalan push for independence was the wave of corporate flight that followed the referendum and the realization among Catalan elites that a nominally independent Catalan state would never be able to access credit and means of payment so long as international investors continued to worry about political uncertainty and the ECB refused to recognize its sovereignty.

What is needed today, then, is not just a proliferation of new financially dependent state apparatuses, nor the kind of inward-looking social chauvinism or left-nationalism that has recently animated certain segments of the European and American left. Rather, what is needed is a revamped popular internationalism that focuses all its energies on opposing the politics of dispossession and dismantling the rootstock of capitalist imperialisms both past and present: the structural power of finance. In practice, this will require the left to come to terms with the intricate and somewhat arcane operations of global financial markets, central banking, international financial institutions and the monetary system, and to find radical new ways to bring the privatized process of credit and money creation under democratic control. At the same time, it will also need to involve a realistic reckoning with the limits of state power – especially under conditions of globalization and financialization – and of the role of the state in reproducing capitalist and imperialist power relations more generally. Indeed, as Syriza’s recent experience in Greece has amply demonstrated, without building social power through autonomous popular organizations and enduring institutions of radical democracy outside of the state-finance nexus, the left will be doomed to remain little more than a badly dressed lackey of global capital.

Ultimately, the only way to begin dismantling imperialist relations of domination and truly liberate the new debt colonies from their economic subjugation is for the working classes and social movements of both the debtor and the creditor countries to become aware of their shared interest in building a unified front against the impositions of global finance. As Thomas Sankara so cogently put in his famous debt speech at the Organization of African Unity conference in Addis Ababa in 1987, just months before his assassination, “the popular masses of Europe are not opposed to the popular masses of Africa. Those who want to exploit Africa are the same ones as those who exploit Europe. We have a common enemy.” It is high time for the left in the imperialist heartland to heed those words and begin acting upon that fundamental reality.


1 Jason Hickel, “Aid in reverse: how poor countries develop rich countries,” The Guardian, January 14, 2017.
2 Cited in Peter Spiegel and Stefan Wagstyl, “Greece’s Alexis Tsipras faces Syriza rebellion over ‘humiliation’,” Financial Times, July 14, 2015.
3 J. A. Hobson, Imperialism: A Study (Nottingham: Spokesman, 2011 [1902]), 119.
4 Hobson, Imperialism, 86.
5 David Harvey, The New Imperialism (Oxford: Oxford University Press, 2003), 138.
6 Cited in Harvey, The New Imperialism, 137.
7 Rosa Luxemburg, The Accumulation of Capital (London: Routledge, 2003 [1913]), 401.
8 Rudolf Hilferding, Finance Capital: A Study of the Latest Phase of Capitalist Development. (London: Routledge and Kegan Paul, 1981 [1910]), 21.
9 Hilferding, Finance Capital, 226.
10 Hilferding, Finance Capital, 234.
11 Hilferding, Finance Capital, 7-8.
12 Hilferding, Finance Capital, 334.
13 Nikolai Bukharin, Imperialism and World Economy. (London: Martin Lawrence, 1929 [1918]), 61.
14 Bukharin, Imperialism and World Economy, 60, 73.
15 V. I. Lenin, Imperialism, The Highest Stage of Capitalism: A Popular Outline (New York: International Publishers, 1939 [1917]), 11, 13.
16 Lenin, Imperialism, 66, 101.
17 Marc Flandreau and Juan Flores, “Bondholders vs. Bond-Sellers? Investment Banks and Conditionality Lending in the London Market for Foreign Government Debt, 1815-1913,” Working Paper 2, (European Historical Economics Society, 2011), 21-22.
18 Carlos Marichal, A Century of Debt Crises in Latin America (Princeton: Princeton University Press, 1989), 43, 55, 67.
19 Herbert Feis, Europe, The World’s Banker: 1870-1914 (New Haven: Yale University Press, 1930), 105; Marichal, A Century of Debt Crises in Latin America, 102; Luxemburg, The Accumulation of Capital, 405-6.
20 Feis, Europe, The World’s Banker, 12.
21 Kris James Mitchener and Marc Weidenmier, “Supersanctions and Sovereign Debt Repayment,” Working Paper 11472 (National Bureau of Economic Research, Cambridge, MA, 2005). These findings, however, have been contested by other scholars.
22 Murat Birdal, The Political Economy of Ottoman Public Debt: Insolvency and European Financial Control in the Late Nineteenth Century (London: Tauris, 2010), 6-7.
23 Birdal, The Political Economy of Ottoman Public Debt, 84.
24 W. H. Wynne, State Insolvency and Foreign Bondholders: Selected Case Histories of Governmental Foreign Bond Defaults and Debt Readjustments, vol. 2 (London: Oxford University Press, 1951), p. 594.
25 Jamie Martin, “The Colonial Origins of the Greek Bailout,” Imperial & Global Forum, July 27, 2015,
26 Martin, “The Colonial Origins.” For this connection between the League of Nations and the IMF, see Louis W. Pauly, The League of Nations and the Foreshadowing of the International Monetary Fund, Essays in International Finance 201, (Princeton: International Finance Section, Princeton University Department of Economics, 1996).
27 Michael Hardt and Antonio Negri, Empire (Cambridge, MA: Harvard University Press, 2000).
28 Harvey, The New Imperialism, 181.
29 Nathaniel Mehr, introduction to Imperialism: A Study by John A. Hobson, 37.
30 Karl Marx, Capital, trans. Ben Fowkes, vol. 1 (London: Penguin, 1990), 919.
31 Luxemburg, The Accumulation of Capital, 350.
32 James O’Connor, The Fiscal Crisis of the State (New York: St. Martin’s Press, 1973), 188.
33 Ernest Mandel, The Marxist Theory of the State (New York: Pathfinder Press, 1971).
34 Hilferding, Finance Capital, 370.

Author of the article

is a Fellow in International Political Economy at the London School of Economics, and the founding editor or ROAR Magazine.