William K. Tabb :
(©Monthly Review, June 1997)
 
 

                                      Globalization Is An Issue, The Power of Capital Is The Issue
                                                                              by William K. Tabb
 

                         This paper was originally presented at the 1997 Socialist Scholars Conference.

                          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.
 
 

                         NOTES

                            1.See Paul Hirst and Grahame Thompson, Globalization in Question:
                               The International Economy and the Possibilities of Governance
                               (Cambridge: Polity Press 1996).
                            2.See Hirst and Thompson p. 68
                            3.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.
                            4.See Hirst and Thompson, pp. 9-10
                            5.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.
                            6.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.
                            7.Michael J. Mandel "The High-Risk Society," Business Week,
                               October 28, 1996 p. 86.
                            8."NAFTA: A New Union-Busting Weapon?" Business Week, January
                               27, 1997, p. 4.
                            9.Eric Foner "Plantation Profiteering," The Nation, March 31, 1997 p.
                               28.
 

(*)WILLIAM K. TABB is professor of economics and political science at Queens College and the Graduate Center of the City University of New York. He is the author of The Postwar Japanese System (1995).