THE capitalist system cannot experience sustained growth in the absence of an exogenous stimulus, that is a stimulus arising from outside the process of growth itself. This is because the capitalist system witnesses booms and slumps, and while there is an automatic end to booms when capacity is fully utilized, there is no automatic end to a slump. Marx had thought that the scrapping of some equipment would bring the slump automatically to an end. But scrapping of equipment dos not just reduce productive capacity; it also reduces  demand because expenditure on the maintenance of the old equipment that is being scrapped ceases, and if the loss of demand exceeds the loss of used capacity that is being scrapped, then the economy would not recover through scrapping. This is usually the case, which is why acquiring some demand from outside the system would be essential for reviving the process of accumulation; and that is why an “external market” is essential for capitalism, and is one of the factors underlying imperialism.  

This in a nutshell was Rosa Luxembug’s theory of imperialism, and even though the theory in its original form had contained errors, as Otto Bauer, Lenin and Bukharin had pointed out, it had displayed in the words of well-known economist Joan Robinson a remarkable “prescience”. This “prescience” was valuable because it explained a real-life phenomenon, namely, the destruction of craft production and deindustrialization in colonies of conquest. This destruction was not the usual playing out of competition, of cheaper goods outcompeting more expensive ones; it required coercion, for introducing commodity production on a larger scale in the colonial economy in the first place, for which imperial control over it was essential. Capitalism in short found an external stimulus for itself through imperial control over outlying regions, which was in addition to the motive of obtaining raw materials and foodgrains from these regions.

The ability of these outlying regions to provide external markets would obviously be exhausted eventually; once a market has been captured by capitalist products, sales in it would not increase since no growth would be taking place in these outlying regions. Hence, fresh markets had to be continuously found for providing such an external stimulus. This was the basis for Luxemburg’s theory of “collapse” of the system, namely, that when existing precapitalist markets would get exhausted and no more fresh markets would be available, the system would not be able to continue with capital accumulation any more; but of course she believed that the proletariat would have overthrown the system long before such a limit point arrived.

The argument advanced by the English economist John Maynard Keynes underscored an alternative possibility, that state spending could provide such an external market for the capitalist system proper. Since state spending could be turned on and off at will and could increase without limit, the exhaustion of the external stimulus impelling the system towards “collapse” that Luxemburg had visualized in the case of precapitalist markets, need not arise when the external stimulus came from state spending. As a result, many writers, not just bourgeois writers but even many writers influenced by Marxism, had come to believe that capitalism had finally come to stabilize itself economically. Their critique of capitalism had shifted accordingly to a moral terrain, about how it subverted any sense of community and apotheosized  aggrandisement at the expense of others; but they no longer emphasized its economic contradictions.

This of course was completely erroneous: state expenditure could not be relied upon to provide an external stimulus under all circumstances. Since state expenditure can provide an external stimulus only if it is financed by taxing the rich or by running a fiscal deficit (taxing the workers who consume the bulk of their incomes anyway and spending the proceeds does not add to aggregate demand), and since both these avenues of revenue acquisition are disliked by capital, capital was bound at some point to oppose Keynesian demand “management”, even if it accepted such “management” temporarily. Indeed it was only a matter of time before this happened; and capital’s resistance to Keynesian demand “management” became effective with the internationalization of finance that occurred with globalization.

It is not surprising that today as neoliberal capitalism remains mired in stagnation, the state can do little to lift the particular capitalist economy over which it presides out of this stagnation. Put differently, the “control area” over which the economic jurisdiction of the state can at all be effective and the terrain of operation of big capital in the neo-liberal era are no longer identical: the former is confined to the boundaries of a nation, while the latter embraces the entire world. This renders Keynesian demand “management” infructuous.

To say this does not mean that state expenditure in particular areas like militarism does not increase. In fact, Donald Trump’s suggestion that NATO countries should spend as much as 5 percent of their Gross Domestic Product on militarism hardly met with any effective opposition from the NATO allies of the US, other than Spain. This may give the impression that our argument above about the state’s inability to increase aggregate demand in any particular country in the era of globalization lacks validity. But in no NATO country is this larger military expenditure going to be financed either by a larger fiscal deficit or by taxing the rich; it will be financed, apart from larger taxes on the working people, by cutting down on welfare expenditure; and the substitution of military expenditure for welfare expenditure, apart from its baneful consequences for the working people, does not increase aggregate demand and hence does not overcome the state of stagnation.

But if “external markets” in the form of precapitalist markets that Rosa Luxemburg had talked about are no longer available because pristine precapitalist spaces to be encroached upon by products of capital no longer exist, and if “external markets” in the form of state expenditure are no longer available because of the veto of globalized finance, then what happens to the capitalist system? How does it cope with this absence of “external markets”? Some of Donald Trump’s recent measures provide a clue that helps in answering this question. And the answer lies in the fact that the system then turns upon itself.

It implodes, with the leading capitalist country pursuing a “beggar-thy-neighbour” policy vis-à-vis other capitalist countries, especially countries of the global south. The picture that Rosa Luxemburg had painted, of the capitalist sector of the world annexing as its external market the precapitalist sector of the world, is now replaced at a higher level by the leading metropolitan capitalist economy of the world annexing as its external market the less developed capitalist economies of the world, viz. the economies of the global south.

This, it may be thought, is no more than standard capitalist practice: after all capitalist units, and capitalist countries to which these units belong, are forever engaged in competing against one another. The leading metropolitan capitalist economy is simply competing against countries of the global south; this competition constitutes normal capitalist practice and has nothing to do with any imperialism. Such a view, however, is erroneous: under normal capitalist competition, the countries of the global south today would outcompete the US in a whole range of goods (except where the US government gives massive subsidies, as in the case of agricultural products). What the US is planning to do is to find  “external markets” for itself within the capitalist economies of the global south, through coercion; and this is exactly a replication of what had happened in the colonial era and what had stimulated Rosa Luxemburg to analyse the role of “external markets”.

There are two basic coercive instruments being used by the US: one is the imposition of one-way tariffs, that is, the US imposes tariffs on goods from the global south entering its own market but would not allow countries of the global south to impose any comparable tariffs on American goods entering into their markets. The second coercive instrument is the one-way imposition of import obligations. Specific targets for imports from the US are stipulated for a country of the global south, but not the other way round; that is, no such obligations are imposed on the US in the matter of importing from the global south country.

Both these stipulations were there in the Indo-US Trade Treaty that had been finalized, until a US Court struck down Trump’s trade measures. This treaty is being renegotiated and has been reportedly finalized. When it is made public one would almost certainly see these coercive aspects.