We begin a two-part article on the continuing surge in capitalist globalisation. This month we deal with the globalisation of capital.
Following the downfall of state capitalism in Eastern Europe the idea of one global market soon found common cause in neo-conservative and neo-liberal circles. Indeed, for these ideologists of capitalism the world market only became truly global once the former state capitalist regimes threw open their doors to private finance and capital investment from the G7 nations. Obviously, for such thinking to take hold it had to ignore a multitude of historical facts concerning the economic development of capitalism and its eventual transformation into a world system.
In 1865, for example the first global regulatory agency was formed with the creation of the International Telegraph Union, along with the first global medical resource, which we know as the Red Cross. Also, if globalisation only took place when the G7 nations became G8 (with Russia joining) then the new ‘thinkers’ need to explain how two wars commonly referred to as world wars were fought over who was to dominate access to global raw materials and a market that was already global. Another historical fact that is largely ignored is that despite supposed ideological differences the trade between the state capitalist regimes and the rest of the world increased throughout the Cold War.
This is how the economist Keynes confirmed – rather belatedly – in the aftermath of World War One, the process of globalisation that had gone on until then:
“What an extraordinary episode in the economic progress of man that age which came to end in August 1914! . . . The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could at the same moment and by the same means adventure his wealth in the natural sources and new enterprises of any quarter of the world, and share, without exertion or even trouble, in their prospective fruits and advantages; or he could decide to couple the security of his fortunes with the good faith of the townspeople of any substantial municipality in any continent that fancy or information might recommend.” (The Economic Consequences of the Peace, 1919)
Coming from Keynes it would be rather naive to expect him to describe the wave of globalisation that had taken place around the turn of the twentieth century in terms other than pro-capitalist ones. For unlike Marx, who saw the main instrument for social change originating with the class conscious workers, Keynes was convinced throughout his life that the capitalist class held the centre stage, albeit with the need of some interventionist help from the state.
Marx had also predicted the potential for capitalism to become a global system, with its attendant economic, political and social consequences, when he and Engels drew up the Communist Manifesto in 1848. And he confirmed, far earlier than anyone else, the trend for capitalism to evolve towards economic interdependency and globalisation when Das Capital was published in 1867.
The arguments over the benefits of ‘protectionism’ versus free trade that existed during the nineteenth century, and then in the periods just before and then after the First World War, were never entirely resolved within the capitalist class one way or another. Fierce arguments raged with various policy initiatives and reversals, though for most of the dominant states of the time (such as Britain) what passed for ‘free trade’ gained something of an ascendancy by stealth.
But in terms of the globalisation of the system, the most crucial event took place rather later, towards the end of another war caused by competition over economic power and military interests — World War Two. Significantly, in the summer of 1944 at Bretton Woods, New Hampshire the gangster representatives of 44 countries held a meeting to hammer out a deal on global trade and sharing the spoils of (the latest) war. This included the creation of the World Bank and the IMF and the initial setting up of a General Agreement on Tariffs and Trade (GATT),with the latter coming into force in 1948.
Although these new institutions eased the existing rules on tariffs and the movement of currency, by seeking common ground on exports and imports and Foreign Direct Investment (FDI), they had no powers to control new forms of protectionism that had been instigated by the major powers in order to maintain their market share and economic dominance. And this was reflected in what happened shortly after the Second World War ended, when the US introduced the Marshall Plan in 1949 involving $13.5 billion of loans by the US government to near-bankrupt European economies. All told $90 billion was steered towards 16 countries that agreed to move towards currency convertibility, lowered trade tariffs, who promoted exports to the US and who were ‘tough on communism’. This not only meant that the US export market was protected in Western Europe but was also, in retrospect the first economic warning shots in the start of the Cold War.
The Cold War itself proved to be a nice little earner for those countries in the “developing” world who allied themselves to either East or West, with most of the proceeds ending up in arms deals or directly into the pockets of corrupt politicians and bureaucrats. Not that this bothered the developed countries, for during this period of Cold War economics many developing and undeveloped countries found themselves accepting loan agreements whether they wanted them or not – and with very favourable terms of borrowing at very low rates of interest, plus longterm payback dates. They seemed at the time to have little to lose by becoming debtor nations. As for the creditor nations, both East and West, their aim during the cold war was to increase their hegemony and market share by making the client debtor nations militarily and financially dependent on them as creditor states and to gain the upper hand over their competitors.
The loans themselves came from a variety of sources: manufacturing and financial businesses, banks, donor states, the IMF and the World Bank being the main lenders. Much of this money was lent under a ‘no risk’ guarantee covered by Export Credit Agreements (ECA), where individual donor states with their export agencies would underwrite the loans through aid contracts — specifying that the capital investment could only be spent through named companies established in the donor state.
For instance, the Nigerian government could have decided to build a university, and could approach a donor state like the UK to finance the project, both seeking agreement as to the profitability of the aid. The UK government would then stipulate that the university could to be built by a UK developer and equipped by British manufacturers and key posts staffed with British-trained personnel. Should the Nigerian government default on their repayments of the loan what would usually happen is that the UK would agree to pay off the loan under ECA if the Nigerian government issued a bond tied to a percentage of Nigerian oil exports in order to cover the amount owed. This would ensure the capital invested stayed in circulation via petrodollars, despite the losses incurred. Obviously, deals like this could only continue whilst there was sufficient confidence in the strength of the US-driven Western economies.
Crisis of Over-Accumulation
During the early 1970s this changed dramatically when loss of confidence over escalating costs of the Vietnam War became evident with many countries selling off their dollar reserves in favour of gold. Unable to withstand this pressure the US came off the Gold Standard in 1971 and allowed the fixed exchange rate system that was pegged to the dollar to collapse. The price of gold increased and there followed a period of financial instability which, in essence, reflected the return of economic crisis in the sphere of production, with economic downturns in major western economies and growing unemployment. It was at this time that the main oil-producing cartel dominated by capitalists in the Middle East (OPEC) decided to quadruple their oil prices. These events eventually flooded the North American and European financial markets with vast amounts of accumulated petrodollars searching for profitable investment that was difficult to find in the more ‘traditional markets’ of the post-war period. Due to the European Economic Community (EEC) at the time being insufficiently organised or integrated to attract the massive amounts of capital in the OPEC countries, some of it filtered towards the Pacific Rim, commonly referred to as the ‘Asian Tigers’.
With the exception of the Multi-fibre Agreement drawn up by GATT, much of this investment for Asia hit a variety of protectionist barriers on the export of capital. Although GATT tried to get around monetary restrictions with the introduction of the SWIFT system for electronic interbank fund transfers worldwide and other measures, the pressure for change in currency regulations intensified throughout the 1980s as capitalism’s trade cycle returned with a vengeance with plummeting production and soaring unemployment.
Out of this emerged what came to be called the ‘Washington Consensus’ instigated by the neo-liberals within the US Treasury, IMF and World Bank who advocated a programme to free up capital assets by: privatising state owned monopolies; reducing personal and business taxation; deregulating financial institutions; removing restrictions on FDI; and reducing public spending, particularly on welfare benefits. Urged on by the collapse of the state capitalist regimes who could not compete economically or militarily any longer with the dominant Western economies, the pressure continued to intensify for deregulation of currency movement and the abandonment of GATT, and its replacement by the World Trade Organisation. This eventually took place in 1995 and under it trade and the movement of currency and capital assets has had a much more straightforward path to profitable markets.
Deregulation of currency movement and the removal of restrictions on FDI, however, proved to be just too late for the developing countries on the Pacific Rim. By 1997 these countries had found their credit was severely overextended, delivering a lower rate of profit than predicted by the pundits and speculators of the financial institutions. The unintended consequence of the crisis in South East Asia was the acceleration of the movement of currency into other areas still — like China and India — where there were better prospects of profits.
This is the nature of capitalism for the accumulation of capital is dependent on economic growth, regardless of the risk attached, and is essential to the workings of a system that puts competition and the pursuit of profit, at each link in the chain — from production to distribution and eventual sale to the consumer — above all else.
Risks
With the velocity facilitated by the internet, clearly the overall economic trend is towards short-term profits through FDI, currency speculation and by squeezing market share of competitors, particularly in manufacturing and services. But that does not mean that the developed countries are solely concentrating their investments in the developing countries — far from it. The greater volume of trade and investment is still between the G8 countries themselves who, forced by global market conditions, have taken into account the relative economic, political and social stability of the developed world, compared to what they would sometimes gain from relatively precarious investment in any of the developing, or even undeveloped countries.
Generally, what is most noticeable about this economic activity is that all the developing countries targeted by the World Bank, IMF and the WTO were selected because they have access to sufficient energy and water supplies to sustain a short-term industrialisation programme, rather than sustained long-term growth. For example, China is scouring the world for all the uranium ore available and every drop of oil necessary to accomplish its aim of overtaking Japan and becoming the main industrial nation in South East Asia and second to the US globally. And China is currently finding it very difficult to meet the increased demand for electricity and for bottled and industrial water, and consequently using 47 percent of the world’s cement to complete the damming of the Yangzi, and meet their targets on urbanisation and industrial capacity. In effect the Chinese have soon come to realise that without sufficient energy and water their plans for long-term growth are unachievable. Although this economic targeting over energy and water resources is undoubtedly a high-risk strategy, and has all the potential for military conflicts over essential resources, it is one explanation why the emphasis is on short-term profit and speculation.
What is also apparent is that the freeing up of the movement on capital has not entirely been accompanied by a corresponding deregulation in the movement of labour. Indeed, the restrictions on immigration have been tightened in some cases, and strictly enforced by some countries to hold back the flood of economic, and mostly illegal, immigrants chasing the movement of capital in the developed and developing countries. These phenomena have led to the growth in human trafficking — and the casualties are being found suffocated in the back of lorries at Dover harbour, or drowned on a beach in Morecambe Bay or even crushed by a train in the Eurotunnel.
There are also other risks associated with the pursuit of industrial growth in the developing world, the most obvious one being the spread of AIDS, particularly in Africa where it has been helped along by a tenfold increase in the transportation of commodities. And then there’s the risk that the increase in global pollution and the onset of global warming will put severe pressure on the relocation of coastal communities.
A less immediately obvious risk is of an increase in capitalist industrial growth in some countries facilitating and encouraging the manufacture of weapons of mass destruction and their eventual use in competitive power struggles between states. These and other risk factors can only accelerate as the demands for more energy and water increase in line with industrial growth.
The reasons why these patterns of risky economic activity are so pronounced are many and varied, but all are nonetheless based on capitalism’s inherent competitive drive to maximise profits regardless of the consequences. The actual growth in economic development in parts of the developing world attracting investment has been on a tremendous scale with developing countries like Brazil, China and India sucking in vast amounts of capital to increase their infrastructure and manufacturing base. In particular the annual percentage increase in GDP for China (9.8) and India (8.1) illustrates how these economies are being dramatically reshaped in the interests of capitalism.
Brian Johnson
Next month: the impact that the continuing surge in globalisation is having on people in the developing and undeveloped countries.
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