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A Critique of Tabb on Globalization

Richard B. Du Boff is professor of economics at Bryn Mawr College; Edward S. Herman is professor emeritus of finance, Wharton School, University of Pennsylvania.

In “Globalization Is An Issue. The Power of Capital Is The Issue” (MR, June 1997), William Tabb rejects what he calls “the strong version of the globalization thesis” as based on the “myth” that “technology and irresistible market forces [are transforming] the global system in ways beyond the power of anyone to do much to change.” He prefers “a more nuanced view,” which would give “a major role to national-level policies and actors, and the central position not to inexorable economic forces but to politics.”

But Tabb has set up a straw man: by definition, those who espouse the “strong version” believe that capitalism has triumphed for good, that the nation-state is no longer relevant, and that “there is no alternative” to the existing social and economic system. Tabb is not the first MR contributor to interpret globalization this way, nor the latest. In the July-August 1997 issue, Ellen Wood embellishes Tabb’s strong version by claiming that it “cuts the ground from under class politics [and] socialism as a political objective,” and implies that “the best we can do is liberate a little more space in the interstices of capitalism, by means of many particular and separate struggles…that sometimes go under the name of identity politics.”

Not only do we reject these propositions, we reject the arguments used to support them, namely, that globalization has little basis in economic fact, is no more advanced than it was during the pre-1914 years, and has no significant political consequences. Our version, both “strong” and “nuanced,” would be that since the early 1970s changes in technology and politics have greatly increased the ability of capital to do what it has always wanted to do—turn the world into one “free market” for finance, production, and wage labor. Ideologically strengthened by the collapse of communism, corporate capital has used its initiatory power in the realms of investment, employment, pricing, industrial location, and selective implementation of new technologies to leapfrog ahead of the ability of progressive forces to mobilize and fight back—which takes time, organization, and, if history teaches us anything, decades of struggle. This is not exactly the first time workers, and the entire left, have faced this situation; nor is it the first time that capital has been able to use the nation-state to accomplish its ends easier and faster, this time in significant measure through the creation of supranational institutions promoting the needs of transnational finance and production (NAFTA, EU, WTO, MAI, and multilateral trade agreements, including the latest “Uruguay Round”).

Tabb argues that “the first need is to critique the strong version of globalization” because its political implications are “defeatist” and have “disempowered much of the left.” But he gives no evidence that the strong version has disempowered anybody. He asserts that “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.” We question this characterization of the views and policy emphases of American labor unionists. Tabb may be confusing labor’s perceptions of the threat from globalization with their actual behavior: they may perceive trade and runaway shops to be threats, but they do not spend all their time fighting them while abandoning struggles for worker welfare at home (see the comments of Hector Figueroa of the Service Employees International Union, In These Times, 31 March 1997).

We believe that a “strong version” is no more “defeatist” than an analogous strong version would have been a century ago, when the industrial system had been dramatically altered in the previous 20 years by the rise of continent-spanning oligopolies and the virtual destruction of the labor movement by the Supreme Court and Pinkerton’s police, and any political response had to face these intimidating new realities. The changes that culminated in the last decades of the nineteenth century transformed disconnected local and regional economies into national economies dominated by corporate capital. Globalization represents a continuation of this historical process—the global economy surpassing the national economy as the most relevant economic space for finance and production for a steadily larger, and dominant, fraction of capital.

This does not mean that the nation-state is “finished” or unimportant: it does mean that financial and industrial accumulation are less dependent on national capital, labor, and technologies and are increasingly drawn into global networks of financial markets and multinational business organizations, with commensurate strategic interests. Furthermore, if as Keith Cowling and Roger Sugden contend (Transnational Monopoly Capitalism), transnational corporation (TNC) growth is “partly a response to the problems posed for the giant corporation by the advent of political democracy coupled with the rising power and militancy of labor,” and is designed not only to weaken labor but “to undermine the [democratic political] institutions themselves,” any politics failing to take these considerations into account would be irresponsible.

Tabb may know some leftists who have swallowed the “myths” of globalization and believe that “there is no alternative” to an all-triumphant capitalism; we don’t. And if the real world demands a closer focus on capital’s globalization strategies and new approaches to political organization, the Tabb approach may be counterproductive, doing a bit of disempowering itself. This is evident in Wood’s comment on prospects for cross-border solidarity and networking: “most people—reasonably enough—have trouble believing in that degree of internationalism, and in the very possibility of organizing on that level, [so] they naturally conclude that the game is up.” We regard this as defeatism, ruling out an important avenue of worker resistance. (For a more positive view of labor internationalism, see Abby Scher, “Coming in from the Cold in the Struggle for Solidarity,” Dollars and Sense, September/October 1997; Esmail Hossein-zadeh, “NAFTA and Sovereignty,” Science & Society, Summer 1997).

Tabb is so eager to discount globalization that he asserts that “transnational capital avoids really low wage production sites, and indeed avoids investing in most developing countries.” While wages and working conditions are not the only factors entering into investment decisions of TNCs, it is misleading, and wrong, to imply that differences in wage rates and labor exploitation have not been a primary force in the growth and distribution of foreign investment. Tabb’s discussion here is also static and ignores changes in patterns of investment. The activities of transnational capital are still concentrated in the Triad (North America, Europe, Japan), but the involvement of the developing world, especially Latin America and Asia (excluding Japan), is substantial and has been growing. In the 1980s, the Triad accounted for 94 percent of all foreign direct investment (FDI) outflows, and only 22 percent of those outflows went to developing countries. In 1993-95, the Triad share of FDI outflows (now exceeding $315 billion per year) fell to 84 percent, and 38 percent of all outflows went to developing countries. Most impressive may be the increase in outward FDI from developing countries themselves—from 0.3 percent of all FDI in the 1970s to 15 percent in 1993-95, with half the FDI flows from Asian developing countries invested in the same region. The governments of developing countries now “recognize the importance of outward FDI for the competitiveness of their indigenous firms and are beginning to remove regulatory obstacles to such investments” (World Investment Report 1996). Prominent among these countries are Mexico, Brazil, the Republic of Korea, Hong Kong, and Malaysia.

The aim of corporate investment in lower-income countries is twofold—to penetrate growing markets and to cut labor costs. Regarding the latter, Tabb himself notes that with the new phase of stagnation since the 1970s, capital has been pursuing “a new low wage strategy.” Globally, this is accomplished in two ways. One is through intrafirm trade by TNCs—cross-border shipment of parts, components, and semifinished goods between the parent company and its foreign affiliates, and among affiliates themselves. This not only allows TNCs to break down the production process into stages and produce intermediate goods in geographically dispersed low-cost locations; it now makes for the transfer of whole technologies embodied in equipment and managerial practices. The best example is Mexican automobile facilities, where workers receive about one-eighth of the compensation of their U.S. counterparts, even though quality and productivity sometimes exceed U.S. levels. According to GM’s own criteria, most of its top-rated factories are in Mexico. The auto giant is not resting on its laurels: it is “building the same plant in Argentina, Poland, China, and Thailand—simultaneously…. The company has designed the plants to look so much alike that engineers may mistake which country they are in. And the assembly lines are being set up so that a glitch in a robot in Thailand, rather than turning into an expensive engineering problem that requires an expert for each machine at each plant, may well be solved by a quick call to Rosario or to Shanghai” (Wall Street Journal, 4 August 1997).

The second is through “outsourcing, ” which covers not only parts and components that TNCs import from their affiliates but also goods produced by subcontractors to be used in further production by a U.S. firm or sold under its own brand name. Outsourcing “has expanded dramatically over the last two decades, ” according to Robert Feenstra and Gordon Hanson (American Economic Review, May 1996). Between 1972 and 1990 imported intermediate inputs of all types increased from 5 percent of total material purchases by U.S. manufacturers to 12 percent. These figures in turn hide a much higher propensity to outsource in certain industries—textiles and apparel, footwear, consumer electronics, instruments, toys, sports equipment, and others. Involved are TNCs like Nike, Compaq Computer, and General Electric, which imports all of the microwaves sold under its own name from Samsung in Korea.

Tabb states that 15 percent of the world’s industrial output is produced by TNCs outside their country of origin, while 85 percent comes from companies producing for their domestic markets. That 15 percent—which embodies the critical flows of intrafirm trade, technology, and outsourcing—is for the year 1990, when it already appears to have been twice as large as in 1970. It continues to grow and represents a multi-pronged threat to wages and working conditions in all domestic industries. TNCs aggressively use the possibilities of relocation and outsourcing as leverage over recalcitrant governments and workers. As Harvard’s Dani Rodrik points out (in Has Globalization Gone too Far?), “globalization makes the services of large segments of the working population more easily substitutable across national boundaries, and therefore fundamentally transforms the employment relationship.” Thus, while visions of a “global assembly line” are often exaggerated, they must not be downplayed. They show us where transnational capital is headed: can anyone doubt that we are only at the beginning of this malignant process?

It is curious that, for Tabb, the issue here is not the globalized production possibilities being created by corporate capital, but rather that “nearly two-thirds of the world’s population is basically written off as far as foreign investment is concerned,” and that “between 70 and 100 countries are worse off now than they were in 1980.” We’d have thought that this is one and the same process—the worldwide spread of financial and industrial capital and the growing inequalities that one would expect to result, just as they have inside the United States itself. Uneven development has always characterized capitalist growth; we see no reason to think that its extension to the four corners of the earth would be any different.

Tabb also tries to deflate the importance of globalizing finance. He claims that in terms of “capital movements” there was no increase in “openness” between 1875 and 1975 and that financial markets were more fully integrated before 1914 than they are now. His argument is based on Robert Zevin’s study of rates of return on similar categories of assets, which found that short-term interest rates on prime commercial loans and government bonds converged as much then as now in major financial centers. This of course is what the pre-1914 international gold standard was supposed to and did produce. But Tabb omits important facts. First, compared with 1875-1914, a much higher proportion of overseas investment now is direct (FDI), which is undertaken for controlling and operating business enterprises abroad and makes for greater economic integration. (The rest is “portfolio investment,” for purposes of income and asset appreciation.) Second, with floating foreign exchange rates and a much greater level of speculation today, Zevin himself raised “the more sinister possibility” that “speculators or investors can ‘punish’ an offending regime with depreciating currency or capital flight, perhaps more effectively than may have been the case under pegged rates [1875-1914].” Third, Tabb ignores the historical and institutional changes between then and now, principally the new supranational mechanisms for integrating not only a far wider range of financial activities but also trade, investment, and production across national borders.

Tabb observes that after 1914 there was a retreat from globalization and, eventually, the emergence of welfare states. And he does imply that globalization—“an undermining of the restrictions on capital which had been put in place in the crisis of the inter-war period”—has damaging effects and “finally undermines the ability of the system to reproduce itself.” But as his objective is to deflate globalization, he contradictorily asserts that “the new triumphs of laissez faire ideology and policy” have “little to do with globalization, and a great deal to do with the victories of capital over labor”—as if these are in separate compartments. And if the new globalization surge is merely a resumption of the pre-1914 trend, does this make it any less important? And isn’t it more important now than earlier given its destructive impact on welfare states that did not exist in the pre-1914 world?

Tabb’s analysis of the role of the state has a formalistic, and non-left, quality. “The idea that ‘globalization’ has weakened the state,” he says, “ignores the continuous technical ability of the state to regulate capital.” He adds that if the governments of the United States and Britain have encouraged deregulation, “this was a political choice, not a technical necessity.” Whoever said these were “technical” issues? And what kind of left position is it to point to the “technical” ability of the state to regulate capital as having any meaningful relation to its actual political capacity at any given time?

Tabb’s unwillingness to acknowledge that globalization, with its enlargement of the effective reserve army of labor and its enhanced investment protections abroad, has anything to do with “the victories of capital over labor” is unreasonable, sacrificing a confrontation with reality to the goal of avoiding “defeatism.” He even assures us that the United States “has the power to raise wages and improve working conditions everywhere.” Wood adds that the state still possesses “the means by which an anti-capitalist force could sever capital’s lifeline,” by “detaching material life from the logic of capitalism.” This virtual dismissal of the adverse effect of globalization on politics seems almost Panglossian. If the United States has made a “political choice” to encourage a race to the bottom for its workers or to tie material life more closely to market relations, it can choose otherwise! Let’s just do it!

Of course we agree that potentially the state does have the power to redistribute income and wealth downward, and to control movements of capital as well. But it has been “technically” able to do these things for decades, if not centuries. Why it has not, or why its advances in these areas are limited and often rolled back, is what political and economic analysis is supposed to address. The belief that globalization has no effects is not based on analysis, and is a recipe for misguidance and failure.

In a series of articles since 1996, MR editors and authors have sought to downgrade globalization as mainly an “ideological mystification,” an artifact of “postmodernism,” and “based on a myth” that denies any role to politics. We believe that this is a seriously mistaken analysis, and that it clashes with the historical momentum of capitalism that MR itself has done so much to elucidate over the years.

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