Atelier No.11, article 12

Edward S. Herman:
July 19, 2001


                     Edward S. Herman

   The accelerated globalization of business over the past 20 years
has had significant economic and political consequences, and has
posed an enormous challenge to the corporate community, workers,
governments, and the left. For business firms it has opened up new
opportunities for growth and cost savings abroad, and for
bargaining down labor and governments at home; but at the same time
it has brought with it added risks and threatened encroachments by
new rivals. For workers in the developed countries, globalization
has been almost entirely negative in effects, weakening labor's
bargaining power where employers have external options, and harmful
elsewhere because of the softening of labor markets and enhanced
power of capital. For workers in the developing countries,
globalization has been a mixed blessing, bringing new jobs, but
poorly paid, unstable, and often in a context of helping
consolidate neoliberal (often authoritarian) governments hospitable
to foreign capital.

   The impact of globalization on workers has been greatly affected
by its effects on political conditions at home and abroad. As it
has strengthened capital's economic position, this has fed into the
political process through growing corporate resources and the
increased capacity of capital to move or threaten movement, and of
highly mobile financial capital to cause rapid changes in interest
and exchange rates. Capital has increasingly been able to veto
social democratic options and force the installation of policies
that serve its interests and further consolidate its power, such as
privatization, opening up markets, and shrinking welfare states. In
the process, government is weakened, although it is left capable of
doing those things that capital deems important, such as
maintaining law and order and negotiating foreign entry of locally
organized transnational corporations (TNCs).

   For the left, globalization has presented a bleak picture and
prognosis, with its steady enhancement of the power of capital,
parallel weakening and disarray of labor, retreat of social
democracy, and fading prospects of socialism. Some marginal
elements of the left have taken heart, even waxing enthusiastic, at
the new clarity of the class struggle, its now obviously global
scope, and the modest signs of labor's awareness of the new
dimensions of the struggle as evidenced by strikes and some cross-
border cooperative and solidarity efforts. A majority of leftists
who have studied the recent developments, however, consider them
damaging and threatening, and view their ongoing advances with
apprehension and dismay, looking for but not yet finding too many
signs of imminent effective resistance.

  This pessimistic view, grounded largely in observable fact, has
produced in reaction an important school of denial, centering in
Monthly Review (MR), whose editors and preferred writers
increasingly take the position that globalization is not new, that
its importance and threat is overrated, and that the first task of
the left is to combat exaggerated and overwrought claims of
globalization's negative effects to avoid defeatism and political
paralysis.(fn Tabb, Wood, Henwood, Albo)

Denial as a Response to Defeatism

  While the deniers are responding in part, and in part
legitimately, to exaggerations of the sweep and impact of
globalization,  many of them appear to be reacting primarily to
fears that belief in the force of globalization may discourage and
disempower workers and other potential opponents of capitalism.
Ellen Meiksins Wood calls globalization "the heaviest ideological
albatross around the neck of the left today...[which] serves as an
excuse for the most complete defeatism and for the abandonment of
any kind of anti-capitalist project." [2-97, p. 23]  For William
Tabb, the "first need" in discussing globalization "is to critique
the strong version of globalization which has disempowered most of
the left." [6-97, 21]

   It is not at all clear, however, that claims of globalization's
dire consequences have in fact disempowered anybody, in contrast
with the discouraging effect of facts on the ground, like capital's
abandonments and moves to Mexico, and threats to do more of the
same, and its improved bargaining position in relation to labor
and governments. Arguably, the left's shortcoming has not been in
its putting forth disempowering claims, but rather its failure to
put forward viable programs and alternatives that would help
globalization's victims respond more effectively. The denial school
has contributed little in the way of constructive solutions, as
telling workers that globalization is overrated and that
governments can still be influenced by them is not very helpful. In
a curious episode, Wood actually denies the potential usefulness of
cross-border organization (asserting that claims that anti-
capitalist struggles must be organized globally "is tantamount to
saying that no effective anti-capitalist struggle is possible at
all") (fn). This is a form of defeatism that would be hard to beat.
   Back in 1992, before fears of defeatism took hold, a major MR
article on globalization spoke of "a totally new stage of global
finance," the "utterly new role of bank lending across national
borders," and an "upsurge and diversification of globalization
[that] has been introducing new economic and political features in
the countries of both the periphery and the core." (2-92, p.1) More
recently, by contrast, there has been a stress on continuity and
attempts to prove that globalization developments are not new. Doug
Henwood, for example, quotes Larry Summers' statement that "I would
guess the invention of relatively simple things, like steamship
transport, did more for world trade than digitalized data
transmission through fiber optic cables. How exactly has the nature
of manufacturing been 'fundamentally altered'?" Henwood comments
that "Globalization is real, but maybe Summers is right, and the
revolution is merely incremental, and not something all that
fundamentally new." (9-96, p. 6) But this is denial rhetoric,
shifting the debate to what is "fundamental," while failing to
examine closely what is new in information technology, its possible
enhancement of the ability to control and coordinate business
across borders, its impact on financial markets, and the fact that
information technology is still in process of improvement and with
effects not yet fully realized.


  The deniers have acknowledged that trade has increased in
importance in recent decades; Tabb notes that the ratio of exports
to GDP among the OECD countries "roughly doubled from 1960 to
1990...from under 10 percent to over 20 percent." Henwood, however,
does not even give ground on this point, offering a table of
exports as a percentage of GDP, 1820-1992, showing percentage
changes from 1950 as follows: U.K., from 11.4 to 21.4; U.S., from,
3.0 to 8.2; Mexico from 3.5 to 6.4, and Japan from 2.3 to 12.4.
[MR, 9-96, pp. 5-6] A world ratio (omitted by Henwood) shows ratios
rising from 5.0 in 1870 to 8.7 in 1913, to 7.0 in 1950, to 13.5 in
1992. Henwood concludes that "the distance between now and 1870 or
1913 isn't as great as it might seem," which is hardly an unbiased
description of the evidence of the changing importance of trade.

  A notable trade development has been the growing importance of
intrafirm trade, reflecting TNC shipments of parts, components and
semi-finished goods between parent and affiliates. It is estimated
that intrafirm shipments now account for a third or more of all
global trade in goods; some 26 percent of U.S. goods exports go
from U.S. parents to overseas affiliates, and another 10 percent
represents goods exported by U.S. affiliates of foreign companies
to their parents. This is problematical to deniers, because it
suggests a growing integration of production by TNCs, and therefore
an important new thrust of globalization. Henwood rebuts this by
citing a U.S. Commerce Department statement that parent supplies to
affiliates "are largely accounted for" by transfers of finished or
near-finished goods. According to Henwood, intrafirm trade in
components, with global assembly line implications, "accounted for
a bit over 10 percent of U.S. trade," and didn't increase from 1982
to 1993.[fn: MR, 9-96, 6-7] But his 10 percent figure applies to
all trade, including services and exports by non-TNCs, rather than
TNC trade in manufactures for which an assembly line analysis is
relevant. Similarly, his quote on trade "largely accounted for" is
about trade in "goods and services," not trade in manufactures. An
article in the Survey of Current Business of February 1997 on "U.S.
Intrafirm Trade in Goods," discussing manufacturing alone, states
that "The intrafirm exports to these manufacturing affiliates have
mainly consisted of materials and components for further

Foreign Investment

   As noted, in 1992 Monthly Review spoke of the surge of foreign
direct investment (FDI) as a highly important new development. But
by the mid and late 1990s, although FDI was still growing rapidly
its importance was being subject to increasing qualification. One
qualification has been that most investment, output and sales are
carried out by domestic firms within countries. Tabb says that "85
percent of industrial output" fits this category; TNCs production
abroad accounts for only 15 percent. But 15 percent is a sizable--
and growing--figure, and the additional 20 percent that TNCs
produce at home simply adds to their power, and helps make it
extremely difficult to control their decisions as to where to
produce and invest.

   Deniers frequently add that the idea that, in Kim Moody's words,
"businesses pick up stakes and relocate offshore in the blink of an
eye is largely 'globaloney'." [Moody, p. 7] But this is a straw
person, as nobody claims that fixed capital is so mobile. As Moody
himself points out, money capital can move in the blink of an eye,
and current output and new fixed capital investment decisions are
made with a global perspective, and these, Moody acknowledges, "do
reshape national economies."

   Deniers also stress that the bulk of FDI has taken place within
the Triad (U.S., Europe and Japan), the implication being that
investment is less global and less oriented to exploiting cheap
labor in less developed countries (LDCs) than you might think. Tabb
even suggests that TNCs "avoid really low wage production
sites,..." [fn] Deniers also stress that most of the output of TNC
foreign affiliates supplies foreign markets, not the TNC's home
market. But even if FDI has been concentrated in the Triad, this
hardly makes its potential movement and output shifts within the
Triad less painful to workers in the countries suffering exit; and
the affiliates' production for foreign markets displaces home
production for export to those foreign markets. The deniers also
fail to note the ongoing changes that don't conform to their
biases, notably the 1990s shift of FDI away from the Triad and
toward the LDCs (from 22 percent in the 1980s to 38 percent in the
mid-1990s), and the growing importance of FDI coming out of the
LDCs themselves (from under 1 percent in the 1970s to 15 percent in
the mid-1990s).

  Another denier focus of attack is on the claims of a growing
integration of global production, discussed earlier in regard to
the meaning of the increasing intrafirm trade. As indicated, that
integration is real and growing, although admittedly sometimes
exaggerated. But not only is the trend there clear, so is the
increased farming out of work across borders, not only in
sweatshops but in work like data processing, accounting, and even
software development, all of these now carried out on a steadily
growing scale between the U.S. and, among other countries, India.
(fn, Judas Economy)

  A final denier focus is on the fact that foreign investment today
is relatively hardly greater now than it was in 1913. But a much
larger fraction of 1913 foreign investment was portfolio rather
than direct investment (FDI), and was therefore less important for
control and the integration of production. The deniers also once
again ignore current trends, which show FDI increasing rapidly. And
they ignore the fact that foreign investment fell massively in the
Great Depression, so that its subsequent growth from a base lower
than that of 1913 is all the more impressive.


  In 1992, Monthly Review found that "by the 1980s, under the
impact of changing economic and political pressures, and assisted
by new electronic and communications technology, a totally new
stage of global finance had emerged--one with 'the freest flowing
and most the world has ever known'..."  The
pre-1913 financial markets were, by comparison, "in their infancy."
(3-92, pp. 1-2) By the late 1990s, however, deniers had discovered
that the infant was already mature in the earlier period, and
citing Hirst and Thompson's Globalization in Question, and Robert
Zevin, assert that "economic historians find greater openness to
capital flows at the beginning of the 20th century...than in the
present period at century's end" (Tabb). Zevin, claiming that
financial markets before 1914 "were more fully integrated than they
were before or have been since," [fn Zevin] has become the deniers
bible (even if little read or understood).

   Zevin's data is more than a decade old, and with arbitraging
money flows having now reduced covered interest rate differentials
among the industrialized countries to a small fraction of a
percent, financial integration today certainly matches anything
seen in the past. Furthermore, with floating exchange rates and far
greater levels of speculation today than before 1914, 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 [under the 1875-1914 gold
standard]." [fn] Contemporary studies also show that over the past
two decades real interest rates have been much higher than rates of
real GDP growth as compared with earlier years, testifying to the
greater constraining and disciplinary power of today's deregulated
and expanded global financial markets. (fn Felix, etc)

  Perhaps most important, reference to the high financial
integration of  the pre-1914 era ignores the fact that there were
no welfare states and social democratic governments that needed
constraint and disciplining in the earlier years. The 1880-1914
gold standard effectively integrated financial markets because with
weak democracies governments could pursue the objective of
protecting the currency value without worry about internal
repercussions. With a more meaningful democracy and welfare state
from the 1930s onward, the conflict between protecting the foreign
exchange rate and serving domestic constituencies became serious.
This has made the resurgent power of globalizing financial markets
a matter of great concern, whatever their relative strength as
compared with markets in the past.

Role of the State

  The deniers strongly oppose the idea that globalization has
weakened the state. Discounting the possibilities of cross-border
organization as a means of combating a globalizing capital, it is
important for them that the state still be viable and subject to
capture by an aroused working class. Tabb argues that the notion of
a weakened state "ignores the continuous technical ability of the
state to regulate capital." He goes on to point out that if
countries have encouraged deregulation "This was a political
choice, not a technical necessity." The U.S., which has undermined
workers rights, "has the power to raise wages and improve working
conditions everywhere." [fn] These amazing statements make control
of the state a technical and "either-or" question, and therefore
completely beg the question of what impact globalization has had on
control over the state.

  Similarly, Wood contends that, contrary to the state weakening
analysts, the state is more important than ever in a globalizing
economy, as it is "needed by capital to help it in the competitive
global world...[and] the nation-state is the main agent of
globalization." (7-8-97, p. 12) For Wood, "if the state is the
channel through which capital moves in the globalized economy, then
it's equally the means by which an anti-capitalist force could
sever capital's lifeline." (id. 15)  But because capital needs the
state, it does not follow that the state will be more easily
captured by anti-capitalist forces. Like Tabb, Wood simply evades
the question of just how economic changes, including globalization,
affect political power. She misses the asymmetry problem--that with
capital's added powers of exit and financial discipline in the New
World Order, and labor weakened,  the state may be readily
mobilized to serve capital's needs, but less and less able to serve
social democratic ends. The state "weakens" as an instrument of
democracy while strengthening as an instrument of capital. Hirst
and Thompson, on whom the deniers depend heavily--and who are
strong believers in free trade and in the necessity of the U.S.
serving as global policeman!!--demonstrate the continued
servicability of the state by their ability to cooperate in GATT,
NAFTA, EU agreements and in beating up Iraq in the Gulf War. They
fail to cite a single case where states cooperated other than for
the benefit of TNCs and the parochial interest of the U.S.


  To deal effectively with globalization it has to be faced
squarely, in all its menace. It presents greatly enhanced problems
to workers and anti-capitalist forces on both the economic and
political fronts. Labor's bargaining position and organizational
strength have diminished, which has made for political weakness;
the financially straitened and threatened workers and unions have
been more easily bargained down, and their power to influence the
state has been reduced. Maybe that will change under  continuing
attacks, and there are already signs of resistance here and abroad,
but honesty compels admission of diminished power. Strengthening is
going to require greater understanding and effective organization
and mobilization; and with capital increasingly tapping a global
reserve army of labor, ruling out collective action across borders
in advance would seem the height of folly.

  Again, the idea that political conditions have not significantly
changed under globalization, because it is still technically
possible to control TNCs, or because the state is obviously still
important in TNC service, ignores reality. Globalization has
strengthened capital's power over the state and has made the
"problem of transition" even to social democracy, let alone
socialism, more difficult.

    Of course progressives must try to organize nationally as well
as across borders, and must focus heavily on gaining power over
national states. But what is needed most from the left is not
clarification of whether globalization is or is not more important
than before 1914; what is needed is a plausible theory of
transition and a model of  an economic, social and political order
that is credible and worth working to create.