Atelier No.0, article 17

Edward S. Herman:
July 19, 2001


                   Edward S. Herman

   Globalization is the systematic extension of corporate
capitalism across borders in search of markets, raw materials, and
lower cost labor. It has surged over the past several decades as a
result of the slowdown of economic growth, intensified
international competition, and facilitating political and
technological changes. An important focus of the new corporate
expansion has been cost reduction, and technological advances along
with greater access to vast pools of cheap labor in China, the
former Soviet bloc and the Third World have been of great
significance in the containment and reduction of the social wage in
First World countries.

   One of the sharpest current debates on the Left is between those
who contend that globalization has taken on new and more
threatening dimensions, substantially increasing the power of
capital and weakening that of labor and the state, and those who
maintain that globalization is not new, has changed only
incrementally, and is greatly overrated as a factor weakening the
state and social democratic possibilities.

  Ellen Meiksins Wood, citing Doug Henwood and Bob Fitch,
characterizes the former view as "globaloney" (Monthly Review, Feb.
1997), and Henwood scoffs at the idea that globalization is either
new or of major importance (Left Business Observer, April 1996).
Both Wood and Henwood--with whom I have serious disagreements on
this issue--stress the politically immobilizing effects of giving
great weight to globalization. Wood says it "serves as an excuse
for the most complete defeatism and for the abandonment of any kind
of anti-capitalist project." And according to Henwood, "it's the
excuse for cutting wages, firing thousands, hacking budgets...[and]
is typically cited to disarm any opposition to almighty capital."

  But if globalization is a significant phenomenon which does
enhance capital's bargaining power, it cannot be denied because the
reality will discourage people, nor can it be dismissed as a mere
"excuse"--it must be confronted honestly and openly as the real
world force and threat that it is.
  Another problem with the claim that the focus on globalization is
immobilizing is that denying its importance is a frequent component
of apologetics for the status quo. If globalization does pose a
serious obstacle to democracy and social reform, then the system
works still more poorly for ordinary people than before and radical
change is even more clearly needed.  This is why the very
conservative Financial Times analyst Martin Wolf greeted with great
warmth Paul Hirst's and Grahame Thompson's Globalization in
Question, which makes the case that globalization is overrated. And
this is why the liberal apologist for the status quo, Paul Krugman,
writing in the New York Times (Feb. 13, 1997) is also anxious to
refute the idea that globalization is to blame for the growing
inequality and immiseration of the majority in the New World Order-
-it is not the fault of "free trade," he argues; we suffer only
because "we" are making the wrong "political choices." Henwood
cites Clinton administration economist Larry Summers' questioning
of the novelty and importance of globalization, but the possibility
that this denial serves Summers' political agenda seems to have
escaped him.

   Henwood argues that a focus on globalization "deflects attention
from the causes of globalization and technical change in the first
place, the quest for higher profits and stock prices. They also
seem conveniently like outside forces, like gravity, rather than
products of human agency." But no left critic of globalization
makes it an outside force beyond human control, although all of
them recognize that it presents a serious obstacle to progressive
change. Furthermore, the focus on globalization calls specific
attention to the particular forms of the "quest for higher profits"
and processes of capitalism that have become so important in the
late 20th century, like the growth of the transnational corporation
(TNC), free trade, the huge and menacing international
money/speculation market, the greater mobility and bargaining power
of capital, the damaging effect of these developments on labor, and
the increased importance of enforcers like the IMF and World Bank
and charters of corporate rights like GATT and NAFTA. These are
precisely the kinds of things that victims and progressives have to
focus on and learn to combat. They are not mantras and myths, they
are a painful reality.

The Painful Reality

  The anti-anti-globalization school has been greatly preoccupied
with proving that the state has not lost its power to control TNCs
and carry out social democratic policies. One form of proof is
historical evidence that internationalization was far advanced even
in the late 19th century and up to World War I. Hirst and Thompson
emphasize that the gold standard, operative before 1914, was a
powerful constraint on policy, and that financial flows and foreign
investment were already relatively large. What they fail to
recognize, however, is that the earlier constraints weren't very
constraining as monetary and fiscal policy were not used for
general stabilization and welfare states were barely emerging.
During and after the Great Depression, however, stabilization
policies became widely accepted and welfare states grew to major
dimensions. So a mere return to the policy constraints of the pre-
1914 global market would have major and highly damaging
consequences, and we have been witnessing a rollback to that
earlier era of market domination of policy and "Dickensian"

  Hirst and Thompson, Henwood, Martin Carnoy and others have also
stressed the fact that although TNCs have grown in importance, they
still do most of their business in their home country, and are
therefore potentially controllable by the home state. It is true
that most of the TNCs do a majority of their business at home, but
they do a great (and increasing) volume abroad, and the conclusion
that their large portion at home makes them controllable (and that
globalization is an overrated threat) doesn't follow. As to their
external business--the 100 largest TNCs have one-third of their
assets abroad, and 40 of them do more than half their business
overseas. The bulk of their overseas production services foreign
sales (rather than sales back to the home market), but these sales
could have been supplied from home facilities, which continue to be
displaced by those invested in abroad.

   The number of TNCS rose from 7,000 to 26,000 between 1973 and
1993; foreign direct investment grew from $68 billion in 1960 to
$2.1 trillion in 1993, and their operations have become more
integrated, reflected in the increase in intra-firm trade--in the
early 1970s such trade was estimated at about 20% of overall trade;
by the early 1990s it had risen to a third, and even more for U.S.
TNCs. These TNCs, and especially the larger ones, now more than
ever think of production and investment decisions on a multi-
country basis. And any decisions they make to shift production or
new investments abroad would have seriously damaging effects on the
home country. This is especially true if a large number of them
come to the same conclusion--for example, that proposed domestic
policy changes threatened their interests--and output-investment
outflows occur on a broad front.
  The anti-anti-globalization analysts generally give inadequate
weight to the globalization of financial markets, where the sums
that now move across borders are enormous and can easily overpower
national monetary authorities. Cross-border bank credit to nonbanks
increased thirty-fold between the early 1970s and 1990 (from $54
billion to $1.7 trillion). Global foreign exchange turnover
increased from $18 billion per day in 1977 to $1.3 trillion a day
in 1995, and the ratio of foreign exchange turnover to exports rose
from 3.5 to 64. Official foreign reserves, dwarfed by these trading
volumes, are now insufficient to allow counter-speculation against
exchange rate fluctuations.

   Most of this explosion in financial trading followed the U.S.-
Canadian led lifting of capital controls in the early 1980s. The
ensuing fuller globalization of money and capital markets was
closely associated with a more aggressive focus on inflation
control through maintenance of a higher "natural rate" of
unemployment (and reserve army), major increases in real rates of
interest, a great increase in exchange rate volatility and foreign
exchange market activity and speculation, a retardation of output
and trade growth, and a sharp increase in the income share going to
the financial sector (and greater overall income inequality). An
excellent case can be made that "the decontrol of financial markets
in the 1980s unblocked channels for moving loanable funds around
the world, which greatly weakened the power of national monetary
authorities to influence real interest rates....The monetary
authorities have been forced to refocus monetary policy from
counter-cyclical stabilizing to accommodating the appetite of the
financial markets for high rates of return." (David Felix, "On
Drawing General Policy From Recent Latin American Currency Crises,"
Working Paper 206, Oct. 1996, Dept of Economics, Washington
University, St. Louis., pp. 24-25.)
    Role of the State-The Asymmetry Problem

  The process of globalization is certainly by no means complete,
and national states still retain a certain amount of autonomy, but
corporate global perspectives and decision-making are widespread
and financial market integration is now very great. These
institutional developments and processes have increased the
relative power of capital in both labor-management bargaining and
in government policy-making. There may not be a clearly defined new
class of international capitalists, but operating through their
leverage over national states and translated into rules imposed by
the IMF, World Bank, and World Trade Organization, transnational
capital is exercising some kind of loose hegemonic power.

   It is still theoretically possible that the state could crack
down on TNCs, impose regulations and threaten to expropriate their
domestic properties (the bulk of their investments) if they failed
to serve broad home country interests. It is also theoretically
possible to socialize these properties, so why isn't that a point
to discuss as well? The money markets are also controllable, in
principle, but actually controlling them would require a virtual
revolution, given the great complexity of the business, its
thoroughgoing international integration, the power of the
participants, and the destabilizing effects of even modest efforts
to control such a system.  The TNCs and financial institutions have
enormous political power, which grows as they prosper and organized
labor weakens. The media are ever more commercialized, centralized,
and globally linked. Governments and political parties have become
ever more dependent on corporate money. Even modest efforts to
control TNC moves abroad are not on the political agenda and
governments continue to encourage transnationalization at the
expense of mass constituencies at home. So the fact that TNCs do
the majority of their business at home helps make them more
controllable only in the most formal sense, divorced from every
relevant political economic fact.  Globalization has helped make
the "problem of transition" far more difficult than it was
previously, which was great, and we have to face up to this
unpleasant reality.
  Ellen Meiksins Wood argues that the state may have lost some of
its functions but "the nation-state is the main conduit through
which the national (or indeed multinational) capital is inserted
into the global market. If anything, the new global order is more
than ever a world of nation-states;..."  Hirst and Thompson argue
that international action of states in the collective interest is
still also possible--they cite GATT, NAFTA, and the Persian Gulf
war! The fallacy in Wood's and Hirst and Thompson's position is
that they fail to see that the loss of state power is asymmetrical-
-that is, the state can function quite effectively, and positive
international collective action can occur, if this serves the
interests of the TNCs. In fact, with international agreements like
GATT and NAFTA the states voluntarily reduce their sovereignty in
the interest of protecting TNC rights from democratic control. The
state is paralysed as an actor by the new global corporate order
only when proposed actions might serve the ends of ordinary

Political Response?

  What should be our political response to globalization? Some left
analysts stress the need to build up an international resistance,
paralleling and hopefully matching capital's global march. Those
arguing that globalization is overrated tend to emphasize focusing
on local and national responses. This division is far from
complete, however, and many of both groups urge a dual focus. I
think it should be obvious that international organization to
resist globalization is going to be difficult, take a very long
time to be effective, and has to be subordinated to local and
national political projects. It is hard enough organizing locally
and within a nation; between nations there are problems of
communication, of overcoming diversity within countries, and of
conflicts of interest between national groups that will encumber
developing effective solidarity.

   Organizing to combat globalization will have to build up from
the local grass roots within each country aiming toward the
conquest of national power, which will bring with it the ability to
prevent home-based (as well as foreign) companies from stymieing
national policy by inter-country moves. The struggle will have to
be "protectionist," with an inward focus on serving the needs of
domestic constituencies neglected by the TNCs. International
organization is important, however, because it is going to be
difficult to attain power and implement policy in one country in a
globalized economy without cooperation abroad. Controlling TNCs and
financial institutions in one country will cause a capital strike
and flight that will be very hurtful if the rest of the world
accepts that exit without penalty and resistance. The hope for
future change is that the damage inflicted by global capitalism
will build up political opposition in many countries in parallel,
so that when conditions permit the attainment of political power in
one country it will do so in many others in the same time frame.