[Marxism] Exchange with Jack Weatherford

Midhurst14 at aol.com Midhurst14 at aol.com
Mon Jun 9 09:55:04 MDT 2008

This appeared in the Financial Time of January  2 2008 and has a current 
George Anthony  
Niall  Ferguson
Future  historians will look back on the current decade as a turning point 
comparable  with that of the Seventies. No, not the 1970s. This is not going to 
be another  piece pointing out the coinci­dence  of an unpopular 
Republican pres­ident,  soaring oil prices, a sagging dol­lar  and an 
unwinnable faraway war. I am talking about the  1870s. 
At  first sight, the resemblances across 130 years may not seem obvious. The 
1870s  were a time when conserva­tive  leaders such as Benjamin Disraeli, 
British prime minister, were powerful and  popular. It was a time of falling 
commodity prices, after the financial crash of  1873 and the opening up of the 
American plains to agriculture. And it was an era  of currency stability, as 
one country after another followed the  Brit­ish  lead by pegging to gold. 
Yet, on closer inspection, we are indeed living through a  global shift in 
the balance of power very similar to that which occurred in the  1870s. This is 
the story of how an over-extended empire sought to cope with an  external debt 
crisis by selling off revenue streams to foreign investors. The  empire that 
suffered these setbacks in the 1870s was the Ottoman empire. Today  it is the 
In  the aftermath of the Crimean war, both the sultan in Constantinople and 
his  Egyptian vassal, the khedive, had begun to accumulate huge domestic and 
foreign  debts. Between 1855 and 1875, the Ottoman debt increased by a factor of 
28. As a  percentage of expendi­ture,  interest payments and 
amortisa­tion  rose from 15 per cent in 1860 to 50 per cent in 1875. The Egyptian case 
was  similar: between 1862 and 1876, the total public debt rose from E£3.3m 
to E£76m.  The 1876 budget showed debt charges accounting for more than half of 
all  expenditure. 
The  loans had been made for both military and economic reasons: to 
sup­port  the Ottoman military position during and after the Crimean war and to 
finance  railway and canal con­struction,  including the building of the Suez 
canal, which had opened in 1869. But a  dangerously high proportion of the 
proceeds had been squandered on conspicuous  consumption, symbol­ised  by 
Sultan Abdul Mejid's luxurious Dolmabahqe palace and the spectacular world  
premiere of Aida at the Cairo Opera House in 1871. In the wake of the financial  
crisis that struck the European and American stock markets in 1873, a Middle  
Eastern debt crisis was inevitable. In October 1875 the Ottoman government  
declared bankruptcy. 
The  crisis had two distinct financial consequences: the sale of the 
khedive's shares  in the Suez canal to the British government (for £4m, famously 
ad­vanced  to Disraeli by the Rothschilds) and the hypothecation of certain  
Otto­man  tax revenues for debt service under the auspices of an 
international  Administration of the Ottoman Public Debt, on which European bondholders 
were  represented. The critical point is that the debt crisis necessitated the 
sale or  transfer of Middle Eastern reve­nue  streams to Europeans. 
The  US debt crisis has taken a differ­ent  form, to be sure. External 
liabilities have been run up by a combination of  government and household 
dis­saving.  It is not the public sector that is defaulting but subprime 
mortgage  borrowers. 
As  in the 1870s, though, the upshot of this debt crisis is the sale of 
assets and  revenue streams to foreign creditors. This time, however, creditors are 
 buy­ing  bank shares not canal shares. And the resulting shift of power 
is from west to  east. 
Since  September, Middle Eastern and east Asian sovereign wealth funds have 
made a  succession of investments in four US banks: Bear Stearns, Citigroup, 
Morgan  Stanley and Merrill Lynch. Most commentators have been inclined to 
welcome this  global bail-out: better to bring in foreign capital than to shrink 
balance  sheets by reducing lend­ing.  Yet we need to recognise that these 
"capital injections" represent a transfer of  the revenues from the US 
financial services industry into the hands of foreign  governments. This is happening 
at a time when the gap between eastern and  western incomes is narrowing at an 
unprecedented pace. In other words, as in the  1870s the balance of financial 
power is shifting. Then, the move was from the  ancient oriental empires (not 
only the Ottoman but also the Persian and Chinese)  to western Europe. Today 
the shift is from the US - and other western  finan­cial  centres - to the 
autocracies of the Middle East and east  Asia. 
In Disraeli's day, the debt crisis turned out to have  political as well as 
financial implications, presaging a reduction not just in  income but also in 
In  the case of Egypt, what began with asset sales continued with the  
cre­ation  of a foreign commission to man­age  the public debt, the 
installation of an "international" government and finally,  in 1882, to British 
military intervention and the country's trans­formation  into a de facto colony. 
In the case of Turkey, the debt crisis was  fol­lowed  by the sultan's 
abdication and Russian military intervention, which dealt a  lethal blow to the 
Ottoman posi­tion  in the Balkans. 
It remains to be seen how quickly today's financial shift  will be followed 
by a comparable geopolitical shift in favour of the new export  and energy ', 
empires of the east. Suffice to say ', that the historical analogy  does not i 
bode well for America's quasi-imperial I network of bases and allies  across 
the Middle East and Asia. Debtor ' empires sooner or later have to do '  more 
than just sell shares to satisfy their  creditors. 
The writer is a professor at Harvard University and  Harvard Business School 
and a senior fellow of the Hoover Institution,  Stanford


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