The globalization hypothesis asserts that there has been a rapid and recent change in the nature of economic relations among national economies which have lost much of their distinct claim to separate internally driven development, and that domestic economic management strategies have become ineffective to the point of irrelevance. Internationalization is, in this view, seen as a tide sweeping over borders in which technology and irresistible market forces transform the global system in ways beyond the power of anyone to do much to change. Transnational corporations (TNCs) and global governance organizations, such as the World Bank and the IMF, enforce conformity on all nations no matter their location or preferences. The corollary to such thinking is that radical alternatives are not possible, and that in Margaret Thatcher’s memorable phrase, TINA, “There is no alternative.”
There is certainly evidence of an increased importance of the international economy over the last decades. The ratio of exports to GDP roughly doubled from 1960 to 1990 among the OECD countries (the richest 24 nations) from under 10 percent to over 20 percent. The stock of international bank lending rose from 4 percent of OECD GDP in 1980 to 44 percent in 1990, and daily turnover in currency markets of well over a trillion dollars dwarfs the reserves of central bank regulators. The fear of plant closings and job loss are a daily reality for working people everywhere and “globalization” has become the all purpose explanation.
There is a great deal of difference however between the strong version of the globalization thesis which requires a new view of the international economy as one that “subsumes and subordinates national-level processes,” and a more nuanced view which gives a major role to national-level policies and actors, and the central position not to inexorable economic forces but to politics. In the second perspective, current changes are considered in a longer historical perspective and are seen as distinct but not unprecedented, and as not necessarily involving either the emergence of, or movement toward, a type of economic system which is basically different from what we have known.
It is important to see that the first version of the globalization thesis is based on a myth, has profound political implications which are defeatist, and is not based on a sound analysis of what is a more complex and contestable set of processes.1 Thus the discussion of globalization is best undertaken as a two step process. The first need is to critique the strong version of globalization which has disempowered much of the left. That is the task of this essay. The second step is to look more carefully at what is new in the present conjuncture. Capitalism is an ever changing system, and it is necessary to base political strategy on an awareness of the nature of developments in the present period. But first we must address the defeatist acceptance of inexorable global capital hegemony.
Much of the U.S. labor movement has embraced the strong version of globalization, placing almost exclusive emphasis on runaway shops and the threat of low wage production venues in the Third World to American workers. Capital will go anywhere in the world seeking the lowest possible wages. But this is at best an oversimplification. It misrepresents the actual investment patterns of transnationals. Three-fourths of foreign investment and production by U.S.-based multinationals is in Western Europe, Canada and other high wage countries and this investment is overwhelmingly to service these markets from local production sites. As for capital leaving the United States, it is important to recognize that since 1990 the United States has been a net importer of foreign direct investment, as the TNCs of other nations have located production in this country and employed American workers. The huge American balance of payments deficit is largely a result of borrowing and the U.S. role as consumer of last resort, the market which absorbs imports paid for with borrowed money. The United States absorbs almost half of manufactured exports from what is anachronistically still called the Third World. U.S. corporations have benefitted from such policies and from the popular confusion between national well-being and the competitiveness of U.S.-based companies.
Production by TNCs outside their country of origin is important, yet 85 percent of industrial output is produced by domestic corporations in a single geographic location. The multinationals account for about 15 percent of the world’s industrial output. Moreover, while much of the Left focuses on runaway shops to low wage venues, transnational capital avoids really low wage production sites, and indeed avoids investing in most developing countries. Nearly two-thirds of the world’s population is basically written off as far as foreign investment is concerned. Growing inequality is a result of the marginalization of most of the world’s population.2 Between 70 and 100 countries are worse off now than they were in 1980, according to UN figures. Greater incorporation into the international economy even for the so-called miracle economies does not necessarily last. A decade ago the development journals all produced special issues on Korea, the most successful of the New Industrial Economies. Today they carry stories about the parlous state of the Korean economy and the growing bankruptcies of the over leveraged chaebols. The fragility engendered by uncontrolled competition produces uncertainty at best, and often disaster for workers everywhere.
In any event direct labor costs are not a big part of the price of many products and low wages alone are rarely decisive for most producers (although they are important in particular industries, for examples for garment producers and electronics assembly.) The major factor in the loss of manufacturing jobs is technological change. Domestic U.S. manufacturing output today is five times what it was in 1950 even as fewer workers are needed by the manufacturing sector. This is overwhelmingly the result of labor displacing technology, not of runaway shops. The lack of unionization in the fast growing high tech industries weakens all workers. The importance of such growth has also contributed to growing inequality in the U.S. economy.3
The Longer Perspective
Capitalism has always been a global system even if the particular ways the world economy affects workers in particular places changes over time. Economic historians ask us to see the present in such a perspective. The world’s political economy is not more globalized than it was a hundred or a hundred and fifty years ago. Rereading The Communist Manifesto makes the point.
The bourgeoisie has through its exploitation of the world-market given a cosmopolitan character to production and consumption in every country…In place of the old local and national seclusion and self-sufficiency, we have intercourse in every direction, universal interdependence of nations…In a word, it creates a world after its own image.
Such integration was clear even before cross oceanic telegraph cables integrated world markets and steel hulled steamers replaced wooden sailing ships; and such innovations in historical perspective were certainly more important in reorienting global production than air freight and containerization a century later. From such a large historical perspective one can conclude that: “If the theorists of globalization mean that we have an economy in which each part of the world is linked by markets sharing close to real-time information, then that began not in the 1970s but in the 1870s.”4 As to the huge sums of money moving around the globe at the push of a computer terminal button, economic historians find greater openness to capital flows at the beginning of the 20th century (before World War One) than in the present period at century’s end. Researchers find no increase in openness between 1875 and 1975, but rather a relative decline in capital movements. Bob Zevin concludes after a review of the evidence: “All these measures of transnational-securities trading and ownership are substantially greater in the years before the First World War than they are at present. More generally, every available description of financial markets in the late nineteenth and early twentieth centuries suggests that they were more fully integrated than they were before or have been since.”5 Nontradables have grown as a proportion of total output between the beginning and end of the present century with the ever growing importance of locally consumed services (including those produced by governments).
Multinational manufacturing firms appeared in the middle of the 19th century and were well established by the beginning of the 20th century. Two world wars and a great depression created what Eric Hobsbawm in his work on the “short” 20th century has described as an interlude of national economics between eras of internationalized economics. In this reading, once recovery from world war and global depression were complete, what took place was not some new departure but a return to trend. Capital flows do not today influence economic development to the extent they did in the 19th century, and the world, as we have seen, is not more globalized today than a century ago. It is however in basic ways different than it was a half century ago and it is this lived memory which is the general referent for much of the discussion today. It is useful to see the ways in which the national Keynesian Welfare State political economy which emerged out of the trauma of war and global depression has eroded, and the extent to which we are back to pre-Keynesian economics and the ideological hegemony of laissez faire.
The Postwar Nationalist Political Economy
The Great Depression and the exigencies of war each in their own way discredited the market system and led to the acceptance of state planning and a major role for government in allocating resources. In the countries of the core, left-center social democratic regimes to one extent or another prevailed and liberal (in the American usage of the term)—labor alliances governed. A class compromise predominated in which capital was forced to accept unions and the role of the state in stabilizing the economy. This led to a post-war structure of accumulation in the context of successful economic rebuilding from wartime damage in Europe and Japan, and to U.S. global hegemony. Through the Marshall Plan and then through military alliances the United States “contained” both the “really existing” socialist states and the mass Communist movements of France and Italy. Non-capitalist regimes were isolated in the mutual militarized stand off of the Cold War, and concessions were made to labor in the advanced capitalist nations. In the newly independent former colonies a local bourgeoisie used nationalism to build its own position vis-a-vis former colonial masters, and kept the masses at bay with nationalist rhetoric and a purported commitment to planning and forms of socialist development, which, in practice seemed to strengthen national elites rather than empower the masses.
As global growth rates slowed down in the economic dislocations of the 1970s, Third World elites found accommodations as junior partners to transnational capitalism. Privatization and export oriented development replaced import substitution and nationalization, strategies which had run up against the limits of the size of domestic markets given the stark inequalities of income and wealth. In the advanced nations, once the recovery from the depression and the Second World War was achieved, excess capacity and intensified competition led to a new low wage strategy that replaced the national Keynesian one of finding markets in higher domestic income and government deficit spending. Globalization reasserted itself as TNCs looked to interpenetrate each other’s markets, and the high cost of product development and faster product cycles led to pressure to market globally.
Accompanying this shift from national Keynesianism to a global neoclassical economics was an undermining of the restrictions on capital which had been put in place in the crisis of the inter-war period. These restrictions developed to protect capitalism from the self-destructive logic of the system itself. As Karl Polanyi, and more recently George Soros among others have pointed out, true laissez faire capitalism means a degree of instability and insecurity which is intolerable to most people, and finally undermines the ability of the system to reproduce itself. The reforms from the 1930s which stabilized U.S. capitalism are all now under attack. These include social security, regulation of banking and the security markets, labor laws (such as the requirement that employers pay time and a half for overtime), and antitrust laws.
The New Triumphs of Laissez Faire Ideology and Policy
The current offensive of capitalist logic into all realms of social life undermine many of the legitimation functions of the state which have provided citizen loyalty for the accumulation patterns of the capitalist system. The demand that everything be done through the market (that college tuition not be subsidized by the state, that legal aid should be abolished, public housing discontinued, and health care provided through the market) all represent attacks on programs which have broad support. But the self confidence with which market ideologists attack any sense of public space, of solidaristic provision of services and shelter from the relentless individualistic values of the market, represents a measure of the defeat of democracy. Similarly, the devolution of service provision in the United States from the federal to the state to the local levels, and then to individual procurement based on ability to pay, undermines the limited solidarities which hold society together. These processes have little to do with globalization, and a great deal to do with the victories of capital over labor, and the resulting damage to the rights of citizenship.
After thirty years during which wages have lagged behind prices, for the head of the Federal Reserve to claim that job insecurity is easing and so it is time to slow the economy is one of the clearest indicators of the triumph of capital in our era.6 In point of fact, America’s corporations, whose profits adjusted for inflation have gone up by 50 percent since 1991, continue to both lay off and hire new workers. The defeat of progressive social policies and the decline in union strength means U.S. capitalism can have lower unemployment without rising wages. Even though jobs are relatively plentiful, new jobs are mostly bad jobs. They pay less than old ones; on average workers who get laid off and find new jobs receive fourteen percent less pay in their new jobs.
In 1993 27 percent of all U.S. workers were in jobs that didn’t pay them enough to live above the poverty level, and only a little over a third of all workers had wholly employer financed medical insurance. The problem is not only high disguised unemployment and the growth of part time work, but the reality that full time jobs do not pay enough to live on. The working poor work harder, live in substandard housing, and lack health coverage. Twenty percent of all full time workers have no retirement or medical coverage. The fast growth of temps and part timers means growing insecurity. Meanwhile the average CEO, who in 1960 earned 40 times the income of the average U.S. factory worker, in 1993 got 149 times the income of the average U.S. factory worker. Welfare benefits to families with children which were 71 percent of the poverty line for a family of three in 1970 were 40 percent of the poverty line by 1992, and are less today. The real value of the minimum wage in 1994 was lower than in 1950. Real hourly wages in the United States were lower in 1994 than in 1968. The top one percent of American households have more wealth than the bottom 90 percent. Between 1977 and 1989 that top one percent enjoyed 60 percent of all the gains in after tax income.
A recent report by the advertising giant Saatchi and Saatchi advised investors to follow a Tiffany/Wal-Mart strategy in light of “the continuing erosion of our traditional mass market—the middle class.” That is, avoid investing in companies which serve the shrinking middle. The richest one percent pays a smaller share of their income in taxes today than in 1979, while their share of the national income has doubled. “Americans,” as Michael Mandel, the Business Week writer notes, “are living with a combination of growth and uncertainty they’ve never seen before.”7 The stock market boom fuels upper class consumption. Over half of all new cars are sold to the top 20 percent of the income distribution. Class division is everywhere more visible. And even as the salience of marxist economics becomes ever more obvious, official economics has returned to pre-Keynesian orthodoxies.
It’s Capitalism, Not Globalization
In this context the idea that the state is powerless to stop these trends is a powerful tool of capital. The idea that “globalization” has weakened the state ignores the continuous technical ability of the state to regulate capital. Money can flee to tax havens and to offshore banking centers only if the core countries allow it to do so. If the United States penalized banks (and depositors) in jurisdictions which do not allow regulators access to information necessary to tax capital transfers, most tax haven banks would shut down. There is no reason regulators cannot impose transfer taxes and other regulations. It is the governments of the advanced nations, especially the United States and Britain which have encouraged deregulation. This was a political choice, not a technical necessity.
By insisting on basic workers’ rights, the United States (which has done so much to undermine those rights) has the power to raise wages and improve working conditions everywhere. It is a political choice that the United States, in the name of free trade, encourages a race to the bottom. A counter hegemonic outlook of solidarity and social justice points to a very different set of rules. It is the ideological and organizational weakness of the Left which has lent power to the claims of globalists. It is not that U.S. employers do not routinely threaten to close plants and move to Mexico and elsewhere. They do, and such threats are effective in the current climate of labor regulation in the United States.8 But it is not international trade per se that is the problem but the political conditions under which that trade takes place.
Robert Blackburn in his new book, The Making of New World Slavery, informs us that by 1770 profits derived from slavery furnished a third of British capital formation. In what might be called a new international division of labor, slaves produced rice, coffee, sugar and other products central to the living standard and personal fortunes of many Europeans. What is interesting is not how much globalization changes things but the continuities in capitalist mentality and practices. As Eric Foner has written: “Today’s Chinatown sweatshops and Third World child labor factories are the functional equivalent of colonial slavery in that the demands of the consumer and the profit drive of the entrepreneur overwhelm the rights of those whose labor actually produces the saleable commodity.”9 Working people have always resisted such demands. At the end of the 20th century resistance will be stronger to the extent to which we do not allow the scarecrow of “globalization” to disempower us. The system is the same, its logic is the same, and the need for workers of the world to unite has never been greater. It is time for greater clarity in our critique of the basic workings of what are called “free markets” but are in reality class power. We need to counterpoise the need to control capital and to have the economy serve human needs rather than accept the continuous sacrifice of working people to such ideological constructions as competitiveness, free markets, and the alleged requirements of globalization.
- See Paul Hirst and Grahame Thompson, Globalization in Question: The International Economy and the Possibilities of Governance (Cambridge: Polity Press 1996).
- See Hirst and Thompson p. 68
- Consider: 20-25 percent of the real wage growth over the last year comes from high technology jobs. Industries such as computers, software, and communication, high tech sales and repair, programming media, information technologies of all sorts are driving the economy. In the past three years the high tech sector contributed 28 percent of the growth in GDP compared to 4 percent for cars and 14 percent for housing. Further the multiplier effects of consumer spending by technical-professional workers dominate whatever growth there is in the rest of the economy. Michael J. Mandel “The New Business Cycle,” Business Week, March 31, 1997.
- See Hirst and Thompson, pp. 9-10
- Robert Zevin, “Our World Financial Market is More Open? If so, Why and with What Effect?” Tariq Banuri and Juliet B. Schor, ed., Financial Openness and National Autonomy; Opportunity and Constraints (New York: Oxford University Press, 1992) pp. 51-2.
- Actually workers are aware of continued corporate downsizing and continue to be fearful that they will lose their jobs and be forced to take lower paying ones with fewer benefits. Every three months a University of Wisconsin survey asks a random sample of workers: “What do you think is the percentage chance that you will lose your job in the next twelve months?” In the most recent survey the average response was 17.5 percent, up from 16 percent a year ago. Aaron Bernstein “Who Says Job Anxiety is Easing?” Business Week, April 7, 1997 p. 38.
- Michael J. Mandel “The High-Risk Society,” Business Week, October 28, 1996 p. 86.
- “NAFTA: A New Union-Busting Weapon?” Business Week, January 27, 1997, p. 4.
- Eric Foner “Plantation Profiteering,” The Nation, March 31, 1997 p. 28.