This article first appeared in the Economic and Political Weekly on 11 October 2025. Michael Hudson ([email protected]) is with the Institute for the Study of Long-term Economic Trends and a distinguished research professor of economics at the University of Missouri-Kansas City.
Abstract: United States’ evangelistic rhetoric describes the imminent political and economic fracture of the world economy as a “conflict of civilisation” between democracies (countries that support US policy) and autocracies (nations acting independently). It would be more accurate to describe this fracture as a fight by the US and its Western allies against civilisation.
Industrial capitalism was revolutionary in its fight to free Europe’s economies and parliaments from the hereditary privileges and vested interests that survived from feudalism. To make their manufactures competitive in world markets, industrialists needed to end the land rent paid to Europe’s landed aristocracies, the economic rents extracted by trade monopolies, and the interest paid to bankers who played no role in financing industry. These rentier incomes add to the economy’s price structure, raising the living wage and other business expenses, thus eating into profits.
The 20th century saw the classical aim of clearing away these economic rents rolled back in Europe, the United States (US) and other Western countries. Land and natural-resource rents in private hands are still rising and even receiving special tax advantages. Basic infrastructure and other natural monopolies are being privatised by the financial sector, which is largely responsible for carving up and deindustrialising economies on behalf of its real estate and monopoly customers—who pay out most of their rental income as interest to bankers and bondholders.
What has survived from the policies by which Europe’s industrial powers and the US built their own manufacturing is free trade. Britain implemented free trade after a 30-year fight on behalf of its industry against the landed aristocracy. This was aimed at ending the protectionist agricultural tariffs—the corn laws—enacted in 1815 to prevent opening the home market to low-priced food imports, which would have reduced farming rents. After repealing these laws in 1846, to lower the cost of living, Britain offered free-trade agreements to countries seeking access to its market in exchange for the latter not protecting their industry against British exports. The aim was to deter less industrialised countries from working up their own raw materials.
In such countries, Europe’s foreign investors sought to buy rent-yielding natural resources headed by mineral and land rights, and basic infrastructure headed by railroads and canals. This created a diametric contrast between rent avoidance in the industrial nations and rent-seeking in their colonies and other host countries, while European bankers used debt leverage to gain fiscal control of former colonies that had won independence in the 19th and 20th centuries. Under pressure to pay the foreign debts that were run up to finance their trade deficits, development attempts, and deepening debt dependency, debtor countries were obliged to relinquish the fiscal control of their economies to bondholders, banks, and creditor-nation governments, pressing them to privatise their basic infrastructure monopolies. The effect was to prevent them from using revenue from their natural endowments to develop a broad economic base for prosperous development.
Just as Britain, France and Germany aimed to free their economies from feudalism’s legacy of vested interests with rent extraction privileges, most of today’s global majority countries need to free themselves from the rent and debt overhead inherited from European colonialism and creditor control. By the 1950s, these countries were being called “less developed” or, even more patronisingly, as “developing.” But the combination of foreign debt and free trade has blocked them from developing along the balanced public/private lines that Western Europe and the US followed. The tax policy and other legislations of these countries have been shaped by US and European pressure to observe international trade and investment rules, which perpetuate geopolitical domination by their bankers and rent-extracting investors in order to control their national patrimony.
The euphemism “host economy” is appropriate for these countries because the Western economic penetration of them resembles a biological parasite feeding off its host. Seeking to maintain this relationship, Western governments are blocking attempts by these countries to follow the path that Europe’s industrial nations and the US took for their own economies, with their 19th-century political and fiscal reforms, which empowered their take-off. These “developing” countries need to adopt fiscal and political reforms to strengthen their sovereignty and prospects for growth on the basis of their national patrimony of land, natural resources, and basic infrastructure. Otherwise, the world economy will remain bifurcated between Western rentier nations and their global majority hosts, held subject to neo-liberal orthodoxy.
Success of China’s Model: Threat to the Neo-liberal Order
Political leaders in the US single out China as an existential enemy of the West, not mainly due to its military threat but rather for China offering a successful economic alternative to today’s US-sponsored neo-liberal world order. This order was supposed to represent the end of history and its logic of free trade, government deregulation, and international investment free of capital controls, and was not a detour away from industrial capitalism’s anti-rentier policies. We can now see the absurdity in this self-satisfying evangelical view that has emerged just as Western economies are deindustrialising due to the dynamics of their own post-industrial finance capitalism. The vested financial and other rentier interests are rejecting not only China but the logic of industrial capitalism as described by its own 19th-century classical economists.
Western neo-liberal observers have closed their eyes to recognising the ways in which China’s “socialism with Chinese characteristics” has achieved its success by a logic similar to that of the industrial capitalism advocated by classical economists to minimise rentier income. Most late 19th-century economic writers expected industrial capitalism to evolve into socialism of one form or another as the role of public investment and regulation increased. Freeing economies and their governments from control by landowners and creditors was the common denominator of the social-democratic socialism of John Stuart Mill, the libertarian socialism of Henry George focusing on the land tax, and the cooperative mutual-aid socialism of Peter Kropotkin as well as Marxism.
Where China has gone further than earlier socialist mixed-economy reforms has been in keeping money and credit creation in the hands of the government, along with basic infrastructure and natural resources. The fear that other governments might follow China’s lead has led the US and other Western finance-capital ideologues to view China as a threat that can provide a model for economic reforms, which are precisely the opposite of what the 20th century’s pro-rentier, anti-government ideology fought for.
The foreign debt overhead owed to the US and other Western creditors and enabled by the 1945–2025 international geopolitical rules designed by American diplomats at Bretton Woods in 1944 obliges the global South and other countries to recover their economic sovereignty by freeing themselves from their foreign (mainly dollarised) banking and financial burden. These countries also have the same land-rent problem that Europe’s industrial capitalism faced, but their land and resource rents are owned by multinational companies, other foreign appropriators, and latifundia plantations that extract resource rents by emptying out the world’s oil and mineral resources and cutting down its forests.
Taxing Economic Rent a Precondition for Sovereignty
A precondition for global South countries to gain economic autonomy is to follow the advice of the classical economists and tax the largest sources of rental income—land rent, monopoly rent and financial returns—instead of letting them be sent abroad. Taxing these rents would help stabilise their balance of payments while providing their governments with revenue to finance their infrastructure needs and the related social spending needed to subsidise their economic modernisation. That is how Britain, France, Germany and the US established their own industrial, agricultural and financial supremacy. This is not a radical socialist policy. It always has been a central element of industrial capitalist development.
Recapturing a country’s land and natural-resource rents as its fiscal base would enable it to avoid taxing labour and industry. A country would not need to formally nationalise its land and natural resources outright. It simply needs to tax the economic rent over and above actual “earned profits.” To cite the principle of Adam Smith and his 19th-century successors, this rent is the natural tax base. But neo-liberal ideology calls such taxation of rent, and the regulation of monopolies or other market phenomena, an intrusive interference into the “free market.”
This defence of rentier income inverts the classical definition of a free market. Classical economists defined a free market as one free from economic rent, not as one free for the extraction of economic rent, let alone as freedom for creditor-nation governments to create a “rules-based order” to facilitate foreign rent extraction and stifle the development of financially and trade-dependent host countries.
Debt Remission as a Precondition for Economic Sovereignty
The fight by countries to free themselves from their foreign debt overhead is much harder than Europe’s 19th-century fight to end the privileges of its landed aristocracy (and less successfully, of its bankers), because it is international in scope. It is also now confronted by a creditor-nation alliance to maintain the system of financial colonisation created two centuries ago as former colonies sought their political independence by borrowing from foreign bankers. Starting in the 1820s, newly independent regions from Haiti, Mexico and Latin America to Greece, Tunisia, Egypt and other former Ottoman colonies won nominal political freedom from colonialist control.
But to build up their own industry, they had to take on foreign debt—on which they almost immediately defaulted, which enabled their creditors to establish monetary authorities in charge of their fiscal policy. The governments of these countries were turned into collection agents for international bankers by the late 19th century. Financial dependency on bankers and bondholders replaced colonial dependency, obliging debtor countries to give fiscal priority to foreign creditors.
World War II enabled many of these countries to accumulate substantial foreign monetary reserves as a result of supplying raw materials to the belligerents. But the post-war order designed by US diplomats based on free trade and free capital movements drained these savings, and obliged the global South and other countries to borrow in order to cover their trade deficits. The resulting foreign debts soon came to exceed the ability of these countries to pay—that is, to pay without surrendering to the destructive demands of the International Monetary Fund (IMF) for austerity that blocked the investment needed to raise their productivity and living standards. There was no way that they could meet their own development needs to invest in basic infrastructure and provide industrial and agricultural subsidies, public education and healthcare, and other basic social spending that characterised the leading industrial nations. This still remains the case.
Their choice today is therefore between paying their foreign debts—at the cost of blocking their own development—or claiming that these debts are odious and insisting that they be written off. At issue is whether debtor countries will gain the sovereignty that is supposed to characterise an international economy of equals, free of foreign postcolonial control over their tax and trade policies as well as their national patrimony.
Their self-determination can only be achieved by joining together in a collective front. Donald Trump’s tariff aggression has catalysed this process by drastically reducing the US market for exports from debtor countries, preventing them from obtaining the dollars to pay their bonds and bank debts, so these will not be paid in any event. The world is now busy de-dollarising.
The need to create an alternative to the US-centred post-war order was expressed in 1955 at the Bandung Conference of Non-Aligned Countries in Indonesia. But they lacked a critical mass of self-sufficiency among themselves to act together. Attempts to create a New International Economic Order in the 1960s faced the same problem. Countries were not industrially, agriculturally, or financially strong enough to “go it alone.”
Today’s Western debt crisis, deindustrialisation, and coercive weaponisation of foreign trade and financial sanctions under the dollarised international financial system, capped by the “America First” tariff policy, have created an urgent need for countries to collectively seek economic sovereignty to become independent from US and European control of the international economy. The collective BRICS+ (Brazil, Russia, India, China, South Africa+) have just begun talking about making such an attempt.
China’s Success Has Made a Global Alternative Attainable
The great catalyst for countries to take control of their national development has been China. As indicated earlier, its industrial socialism has largely achieved the classical aim of industrial capitalism in minimising rentier overhead, above all by publicly creating money to finance tangible growth. Keeping money and credit creation in state hands via the Peoples’ Bank of China prevents financial and other rentier interests from taking over the economy and subjecting it to the financial overhead that has characterised Western economies. China’s successful alternative for allocating credit avoids making purely financial gains at the expense of tangible capital formation and living standards. That is why it is viewed as an existential threat to the current Western banking model.
Western financial systems are overseen by central banks that have been made independent from the treasury and government regulatory “interference.” Their role is to provide for the commercial banking system’s liquidity as it creates interest-bearing debt—mainly for the purpose of making wealth financially by debt leveraging (asset-price inflation), not for productive capital formation.
Capital gains—rising prices for housing and other real estate, stocks and bonds—are much larger than gross domestic product (GDP) growth. They can be made easily and quickly by banks, creating more credit to bid up prices for buyers of these assets. Instead of the financial system being industrialised, Western industrial corporations have become financialised, and that has occurred along lines that have deindustrialised the US and European economies.
Financialised wealth can be made without being part of the production process. Interest, late charges, other financial fees and capital gains are not a “product,” yet are counted as such in today’s GDP statistics. Carrying charges on the rising debt overhead are transfer payments to the finance sector, by labour and businesses out of wages and profits earned by actual production. This shrinks the income available for spending on the products produced by labour and capital, leaving economies debt-ridden and deindustrialised.
Strategy of Creditor-Rentier Nations
The broadest strategy to block countries from avoiding the rentier burden has been to wage an ideological campaign, from the educational system to mass media. The aim is to control the narrative in a way that depicts government as an oppressive Leviathan, an inherently bureaucratic autocracy. Western “democracy” is defined not so much politically as economically, as a free market whose resources are allocated by a banking and financial sector independent of regulatory oversight. Governments strong enough to limit financial and other rentier wealth in the public interest are demonised as autocracies or “planned economics,” as if shifting credit and resource allocation to the financial centres of Wall Street, London, Paris and Japan does not result in an economy planned by the financial sector in its own interest, with the aim of creating monetary fortunes, not improving the overall economy and living standards.
Global majority officials and administrators who have studied economics at US and European universities have been indoctrinated with a value-free (that is, rent-free) pro-rentier ideology to frame the way they think about how economies work. This narrative excludes consideration of how debt polarises economies by growing exponentially at compound interest. Also excluded from mainstream economic logic is the classical contrast between productive and unproductive credit and investment, and the related distinction between earned income (wages and profits, the main components of value) and unearned income (economic rent).
Beyond this ideological campaign, neo-liberal diplomacy uses military force, regime change and control of the main international bureaucracies associated with the United Nations (UN), the IMF and World Bank (and a more covert network of non-governmental organisations [NGOs]) to prevent countries from withdrawing from today’s pro-rentier fiscal rules and pro-creditor laws. The US has taken the lead in using force and regime change against governments that would tax away or otherwise limit rent extraction.
It should be noted that no early socialists (except anarchists) advocated violence in pursuit of their reforms. It has been the vested interests—unwilling to accept loss of the privileges that are the basis of their fortunes—who have not hesitated to use violence to defend their wealth and power against attempts at reform to check their privileges.
To be sovereign, nations must create an alternative that enables them to be in charge of their own economic, monetary and political development. But US diplomacy views any attempt to enact the necessary political and tax reforms and strong government regulatory authority as posing an existential threat to US control over international finance and trade. This raises the question of whether it is possible to achieve reforms and a strong public economy without war. It is natural for countries to wonder whether they can achieve economic sovereignty without a revolution, such as what the Soviet Union, China and other countries fought to end their domination by their foreign-supported landlord and creditor class.
The only way to protect economic sovereignty against military threats is to join an alliance for mutual support, since individual countries can be isolated in the way that Cuba, Venezuela and Iran have been. As Benjamin Franklin put matters: “If we don’t hang together, we will hang separately.”
American writers characterise the attempt of other countries to join together to achieve economic sovereignty as a civilisational war. While this is indeed a civilisational contest, it is the US and its allies that are waging aggression against countries trying to withdraw from a system that has provided them with a huge inflow of economic rents and debt service from host countries subject to US-backed diplomacy.
From European Colonial Occupation to US-centred Financial Colonialism
After World War II, the era of settler-state colonialism gave way to financial colonialism, with the international economy dollarised under US leadership. The Bretton Woods rules established by 1945 enabled multinational corporations to keep economic rents for land, natural resources, and public infrastructure out of domestic fiscal reach. Governments were reduced to the role of acting as collection agents for foreign creditors and as protectors of foreign investors from democratic attempts to tax rentier wealth.
The US was able to weaponise world trade by monopolising oil exports by US and allied oil companies (the Seven Sisters), while US and European agricultural protectionism and World Bank “aid” policy steered food-deficit countries to focus on tropical plantation crops instead of grain to feed themselves. President Bill Clinton’s 1994 North American Free Trade Agreement with Mexico swamped its market with low-priced US farm exports (highly subsidised by strong government support). Mexican grain production plummeted, leaving it food-dependent.
To block governments from taxing or even fining foreign investors to recover compensation for damages to their countries, today’s rentier powers have created Investor–State Dispute Settlement (ISDS) courts requiring governments to compensate foreign investors for increasing taxes or imposing regulations that reduce foreign-owned income. [1] This blocks national sovereignty, including by preventing host countries from taxing the economic rent of their land and natural resources owned by foreigners. The effect is to make these resources part of the investor-nation economy, not their own. [2]
Other nations permitted the US to dictate the post-World War II order, with it promising generous aid to support free trade, peace and postcolonial national sovereignty as spelled out in the UN Charter. But the US squandered its wealth on military spending abroad and financial wealth addiction at home. This has left America’s post-industrial power based mainly on its ability to harm other countries with chaos if they do not accept the “rules-based order” designed to extract tribute from them.
The US imposes protectionist tariffs and import quotas at will, and subsidises agriculture and key technologies as potential global high-tech monopolies while forbidding other countries from implementing such “socialist” or “autocratic” policies to become more competitive. The result is a double standard in which the US “rules-based order” (its own rules) replaces adherence to international law.
US’s agricultural price support policy, initiated under Franklin Roosevelt in the 1930s, provides a good example of their double standards. It made farming the most heavily subsidised and protected sector. It became the model for the European Economic Community’s Common Agricultural Policy (CAP) introduced in 1962. But US diplomacy opposes the attempts of other countries, especially the global South countries, to impose their own protectionist subsidies and import quotas aimed at achieving self-sufficiency in basic food production, while US “aid lending” and the World Bank have (as indicated above) supported the exportation of tropical plantation crops by the global South countries through lending for transportation and port development. The US policy has consistently opposed family-owned farming and land reform throughout Latin America and other global South countries, often with violence.
It is not surprising that, inasmuch as Russia has long been US’s main military adversary, it has taken the lead in protesting against the unipolar US order. Advocating a multipolar alternative to the US neo-liberal order in 2023, Foreign Minister Sergey Lavrov described the postcolonial economic subjugation of the countries that achieved political independence from colonialist rule in the 19th and 20th centuries, but which are now facing the next task needed to complete their liberation.
Our African friends are paying more and more attention to the fact that their entire economies are still largely based on siphoning off natural resources from these countries. In fact, all value added is produced and pocketed by the former Western metropoles and other European Union and NATO members.
The West is using illegal unilateral sanctions, which increasingly become the harbinger of a military attack, as this has happened in Yugoslavia, Iraq and Libya and is now happening in Iran, as well as the instruments of unfair competition, initiating tariff wars, seizing other countries’ sovereign assets and taking advantage of the role of their currencies and payment systems. The West itself has actually buried the globalisation model, which it developed after the Cold War to promote its interests. [3]
Marco Rubio made the same point in the US Senate hearings to confirm him as Donald Trump’s Secretary of State, explaining that “the post-war global order is not just obsolete, it is now being used against us.” [4]
Violating the rules of foreign trade and investment that the US itself dictated in 1945, in yet another instance of the US resorting to the “rules-based order” of its own rules, President Trump’s unilateral tariffs aimed at both shifting the new Cold War’s military costs onto other countries—which were expected to buy American arms and provide proxy armies—and at forcing countries to permit US companies to extract monopoly rents on the leading emerging technologies to replace its lost industrial power.
The US aims to impose monopoly rights and related rentier privileges uniquely favourable to itself on the entire world’s trade and investment. Trump’s America First diplomacy demands that other countries conduct their trade, payments and debt relationships in US dollars instead of their own currencies. The US “rule of law” is one that permits unilateral US demands to impose trade and financial sanctions dictating how and with whom foreign countries can trade and invest. They are threatened with economic chaos and confiscation of their dollar reserves if they do not boycott trade and investment relations with Russia, China and other countries refusing to submit to US control.
The US’s leverage to obtain these foreign concessions is no longer industrial leadership and financial strength, but its ability to cause chaos for other countries. Claiming to be the indispensable nation, US’s ability to disrupt trade is ending its former international monetary and diplomatic power. That power originally was based on its holdings of the world’s largest monetary gold reserves in 1945, its status as the largest creditor nation and industrial economy, and after 1971, its dollar hegemony—arising in large part as a result of its financial market being the safest for other nations to hold their official monetary reserves.
The diplomatic inertia created by these former advantages no longer reflects the realities of 2025. What US officials do have is the ability to disrupt the world’s trade, supply chains and financial arrangements, including the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system of bank clearing of international payments. The US and European confiscation of $300 billion of Russia’s monetary deposits has darkened its reputation for financial safety, while its chronic trade and balance-of-payments deficits threaten to disrupt international monetary stability and free trade that made it the major beneficiary of the 1945–2025 world order.
In keeping with the principle of national sovereignty and non-interference in other countries’ internal affairs that underlay the creation of the UN (the basic principle of international law grounded in the 1648 Peace of Westphalia), Russia’s Foreign Minister Lavrov described (in his speech cited above) the need “to establish foreign trade mechanisms [that] the West will be unable to control, such as transport corridors, alternative payment systems and supply chains.” As an example of how the US had paralysed the World Trade Organization (WTO), which it had created on the basis of free trade at a time when US was the world’s leading export power, he explained:
“When the Americans realised that the globalised system they had created—one built on fair competition, inviolable property rights, the presumption of innocence, and similar principles, and which had allowed them to dominate for decades—had also begun benefiting their rivals, primarily China, they took drastic action. As China started outplaying them on their own turf and by their own rules, Washington simply blocked the WTO’s Appellate Body. By artificially stripping it of a quorum, they rendered this key dispute settlement mechanism inactive—and it remains so to this day.“
The US has been able to block foreign opposition to its nationalist policies by having veto power in the UN, IMF and World Bank. Even without such power, US diplomats have been able to block UN organisations from acting independently of US wishes by refusing to appoint leaders or judges not primarily loyal to their foreign policy. [5] The world no longer is to be governed by international law but by unilateral US rules subject to abrupt change depending on the vicissitudes of American economic or military power (or loss thereof). As Russia’s President Vladimir Putin described this new state of affairs in 2022: “Western countries have been saying for centuries that they bring freedom and democracy to other nations,” yet “the unipolar world is inherently anti-democratic and unfree; it is false and hypocritical through and through.” [6]
The US’s self-image depicts its long dominant world position as reflecting its democracy, free market and equality of opportunity that has enabled its power elite, in their view, to acquire their status by being the economy’s most productive members, through their management and allocation of savings and credit. The reality is that the US has become a rentier oligarchy, one that is increasingly hereditary. Its members’ fortunes are made mainly by acquiring rent-yielding assets (land, natural resources and monopolies) on which they make capital gains, while paying most of their rent as interest to their bankers, who end up with much of these rents and become the new oligarchy’s leading managerial class.
In Summary
The real conflict over what kind of economic and political system the global majority will have is just gaining momentum. Global South countries and others have been driven so deeply into debt that they have been obliged to sell off their public infrastructure to pay its carrying charges. Recovering control of their natural resources and basic infrastructure requires the fiscal right to impose an economic-rent tax on their land, natural resources and monopolies, as well as the legal right to recover environmental clean-up costs caused by foreign oil and mining firms, and financial clean-up costs for the foreign debt burden imposed by creditors who have not taken responsibility to ensure that their loans can be paid under existing conditions.
US’s evangelistic rhetoric describes the imminent political and economic fracture of the world economy as a “conflict of civilisation” between democracies (countries that support US policy) and autocracies (nations acting independently). It would be more accurate to describe this fracture as a fight by the US and its European and other Western allies against civilisation, assuming civilisation entails, as it seems it must, the sovereign right of countries to enact their own laws and tax systems for the benefit of their own populations within an international system that has a common set of basic rules and values.
What Western ideologues call democracy and free markets has turned out to be an aggressive rentier-financial imperialism. And what they call autocracy is a government strong enough to prevent economic polarisation between a super-rich rentier class and an impoverished population at large, such as is occurring within the Western oligarchies themselves.
Notes
[1] I provide the details and discussion in Chapter 7 of The Destiny of Civilization (ISLET 2022).
[2] The Saudi oil company, Aramco, for instance, was not a corporately distinct corporate affiliate but a branch of Standard Oil of New York (ESSO). This legal nicety meant that its income and expenses were consolidated into the parent company’s US balance sheet. This enabled it to receive a tax credit for the “depletion allowance” for oil, rendering the company effectively free of US income tax, although it was Saudi oil that was being depleted.
[3] Foreign Minister Sergey Lavrov’s remarks and answers to questions at the 11th Primakov Readings International Forum, Russian Foreign Ministry, Moscow, 24 June 2025, https://mid.ru/en/press_service/video/view/2030626/
[4] Marco Rubio, testimony of 15 January 2025, https://www.state.gov/opening-remarks-by-secretary-of-state-designate-marco-rubio-before-the-senate-foreign-relations-committee
[5] The International Atomic Energy Agency (IAEA), charged with keeping nuclear proliferation in check, is the most recent notorious case in point. Its leader, Grossi, provided US and Israeli intelligence with the names of Iranian scientists who were killed, and details of the Iranian nuclear refinement sites that were bombed. US veto has prevented almost the entire United Nations from condemning Israeli attacks on the Palestinian population. And when the International Criminal Court (ICC) brought charges against Benjamin Netanyahu for being a war criminal for waging Israel’s genocide against the Palestinians, US officials demanded the judge’s removal.
[6] Vladimir Putin, speech of 30 September 2022 upon the signing of treaties on the accession of Donetsk and Luhansk people’s republics and the Zaporozhye and Kherson regions to Russia, http://en.kremlin.ru/events/president/news/69465
The photo at the head of this article is of an exhibit at the annual Summer Exhibition (2021) at the Royal Academy, London.
