The Challenge of Globalization: Conclusion

This discussion on globalization is a continuation of the discussion that has been taking place in most sections of the CWI recently and will have to continue in the future. This conclusion will draw together the main points that have come up in the discussion and take up some of the questions that have arisen.

As comrade Tony pointed out in his leadoff, and as other comrades have pointed out in the discussion, globalization is not just an economic phenomenon. It is also an ideological and political weapon in an offensive against the international workers’ movement. The point of this offensive is to try to demonstrate that the market is all-powerful and that it is not possible for either national governments or the working class to do anything to resist it.

We have to reply to this offensive. But the worst thing would be to have a conservative reaction and say: “Nothing has changed: globalization is just a myth.” That, of course, is not what we are saying. What we are trying to do is to clarify what has changed and what has not changed, and what are the tendencies and the counter-tendencies in world capitalism today, in order to arrive at an understanding of the present stage of capitalist development, the perspectives and the political consequences. This is not just a discussion about economics but also how the working class will react, how consciousness will develop and how the CWI can intervene in the situation.

In fact, when we talk about globalization and its political consequences, it is not as simple as that: because globalization has political causes as well as political consequences. Is it the case that globalization represents a new and higher stage of capitalist development and that it opens up the possibility of a new period of expansion?

In the first place, as has been pointed out, there are many aspects of globalization which are not new. In fact, the essential characteristics of imperialism as defined by Lenin in 1916 are still valid in their broad outlines. In some cases they are even more valid today than they were eighty years ago. For example, the concentration of production and capital leading to the creation of monopolies, the formation of what Lenin called “international unions” which we would now call multinationals or transnationals, and particularly the fusion of banking and industrial capital to form finance capital, all of which has developed incalculably further from when Lenin was writing. Of course, certain things have changed, like the existence of colonial empires and the way in which the world was divided up among the imperialist powers.

However, simply to underline those points and say, “Well, really, it’s just the same system as in 1916,” would be rather like saying: “Trotsky said in 1938 that the Soviet Union would either go forward to socialism or back to capitalism. Fifty years later it went back to capitalism. So that’s that!” This does not explain what happened in between and what processes led to the present situation.

The point has been made that today the world economy is no more open and foreign investment direct (the export of capital) is not any more important than it was before 1914. That is true, of course, in a certain sense. However, the process was interrupted for nearly half a century, from 1914 to 1945, during which the world economy became in fact less open, where there were trade blocs, protectionism, trade wars, wars, and in fact a reversal of the trends which dominated up until 1914. During this period foreign direct investment receded.

That was followed by the post-war boom, which was based on an enormous expansion of world trade rather than on an expansion of foreign direct investment. The elements of what we call today “globalization” – that is the word that is used, although it is not necessarily the best word – began to emerge with the end of the post-war boom and the beginning of the period of stagnation and depression. These were not automatic, economic processes. There were political causes. What is called the post-war consensus began to break down with the beginning of the crisis in 1973-74. All the things the working class had won – or thought it had won – the welfare state, full employment, rising living standards, public services – began to come under attack. And because in each country, this consensus and these gains were guaranteed by the state, the neo-liberal offensive took the form of an attack on the state. That is, an attack on the role of the state as an economic regulator setting limits on the power of capital, not an attack on the state as a repressive apparatus.

In practical terms this took the form of the attack on the welfare state, the offensive on wages and employment, privatization, which is the opening up of sectors which were previously closed off to private capital, along with the lifting of restrictions on the freedom of movement of capital, both within national boundaries and more importantly on a world scale. In fact, globalization involves the liberation of capital from the constraints which were placed on it in the post-war period, in the period of the post-war consensus. And this process, although it accelerated with the collapse of Stalinism, began in the late 1970s.

What were the main issues raised in the discussion?

First of all, are the multinationals in the process of becoming transnationals, are they becoming what some writers call ‘stateless’, that is, free from their national base?

That is not the case. If you look at, for example, the list of the top five hundred companies published by the Financial Times in January 1996, there are only a very tiny number which are not nationally-based. Each of those multinational companies has the name of a country beside it and that is the country where the ownership of that multinational is concentrated. In fact, only three major exceptions come to mind: Unilever and Shell, which both date from the beginning of the century and which are both Anglo-Dutch, and Asea Brown Bovery, created in the 1980s by a fusion of Swiss and Swedish capital.

But if the multinationals have not become truly transnational from the point of view of ownership, they have certainly become more and more transnational from the point of view of their operations. And globalization has also seen a move away from the extremely centralized multinationals that existed in the 50s and 60s. If capital is highly centralized in its essence, it is becoming more and more decentralized from the point of view of production. What the Irish comrade said about General Motors breaking up into autonomous units is perfectly typical.

Not only that, but more and more multinationals are in the process of becoming what the French Marxist writer, Francois Chesnais, has called “network firms”. That is to say, firms which operate not simply by having subsidiaries in other countries but through a network of relations with other companies to which they subcontract work. Between these multinationals, there is competition, but there is also collaboration. We are seeing an increasing number of what are called “tri-polar alliances”. For example, in the last few weeks, an alliance has been established in the airline industry between British Airways in Europe, United Airlines in the US and China Airlines. And in telecommunications, an alliance has been established between ATT in the US, Unisource in Europe and NTT in Japan. These alliances are established in order to compete with other multinationals which have established similar alliances with other multinationals in Japan, Europe and North America.

So there is an internationalization of production and also, more and more, of services.

The second question concerns the growth of foreign direct investment, that is, export of capital. We have to ask why is there this growth, where it is going and what exactly it is?

Why, in an overall context of stagnation is it more and more necessary for firms to engage in competition on the world market and not simply within the limits of the national economy? Because in the period following the recession of 1974-75, faced with the fall in the rate of profit at home, big companies were seeking ways to get a better return on their investments, and to find new markets abroad for consumer durables.

Where the investment goes is also perfectly clear: 80 percent of foreign direct investment takes place within the “triad” of Europe, North America and Japan, with the difference that the export of capital from Japan to Europe and North America is much more important than the volume of investment of European and North American capital in Japan.

When we examine what foreign direct investment actually consists of we see the parasitic nature of contemporary capitalism, not only in the financial but also in the industrial sphere. Marx clearly distinguished between two processes, concentration and centralization of capital. Concentration of capital means the accumulation of capital by the creation of new means of production. This is productive investment. Centralization means simply the fusion of existing capitals, of existing firms, which is not at all synonymous with the development of the means of production. In fact the two processes are quite opposite.

In the 1980s 75 percent of foreign direct investment consisted not of productive investment but of fusions and acquisitions of companies in other countries. What is the difference in practice? In July the Korean multinational, LGS, established an electronics plant in Wales, Britain. That is productive investment in the sense that a plant is going to be built, machines installed, workers hired, surplus value extracted and realized through the sale of commodities on the market. And that leads to the accumulation of capital. Non-productive investment in the sense of takeovers, acquisitions, fusions, leads, in fact, to the destruction of capital. What happens when one company takes over another? It does not lead to a bigger company, to more workers: it leads to less. The aim is to eliminate the competitor. Factories are closed and workers are laid off. In general only perhaps a few specialized workers, some high-technology, research and development, are kept in the new company. And it is this kind of operation that represents three-quarters of foreign direct investment.

The third question concerns regional trade blocs, which actually should be called regional trade and investment blocks. If you look at the flow of both investment and trade for the multinationals, it takes place essentially within the country and region of the multinational’s origin. For example, for North American multinationals based in the US and Canada, over 70 percent of the sales of those multinationals take place in the US and Canada and over 70 percent of the assets of those multinationals are located in the US and Canada. And similar figures can be cited for Japanese and European multinationals: over 60 percent in all cases. So while the multinationals are reaching out for new markets, their feet are still quite firmly planted in their own backyard.

The fourth question: can the less developed countries, the Third World countries, the countries under imperialist domination, be drawn further into the world market and can they undergo a process of economic growth? The answer to that question is such a resounding no that in fact it seems ridiculous to be talking about globalization, to call “globalization” a process which essentially excludes three-quarters of the world’s population. Because outside the Triad, apart from a small number of newly-industrializing countries in Asia and parts of China, large areas of the world economy are excluded. And the proportion of investment which takes place within the imperialist countries and within these few Asian countries, is rising to the disadvantage of the rest of the world.

If we ask, “Is it possible for other East Asian countries to follow the road of the Asian Tigers, that is, Hong Kong, Taiwan, Singapore and South Korea?”, again the answer is no. In fact, simply looking at the reasons that Tony gave for the development of the Asian Tigers, and particularly that of South Korea, gives you the reasons why the others won’t be able to develop in a similar fashion. The elements that existed before 1980 – state intervention, privileged access to the US market – do not exist anymore. Under particularly favorable conditions and through consistent state intervention, South Korea was able to build up what is extremely rare in the Third World, that is, a real, internal market. South Korean products are not simply exported to the advanced capitalist world – they are also sold in South Korea. If you look at countries like Thailand, Malaysia and the Philippines, they are low-wage, exporting economies which are continually in competition with each other to receive foreign investment. And therefore a domestic market will not develop in the same way that was possible in South Korea and Taiwan.

Most of the countries of the Third World are crippled by debt repayments, by “structural adjustment programs”, and by the opening up of their economies more and more to imperialist penetration, notably through the GATT agreements. Any idea that those countries are in the process of catching up with the advanced capitalist countries is contrary to the truth. In fact the gap is constantly widening between the advanced capitalist countries and most of the rest of the world.

In 1900, the ratio of the richest country in the world to the poorest country in the world was one to eight, that is, the richest country in the world was eight times richer than the poorest country in the world. In 1987 the richest country in the world was 130 times richer than the poorest country. This also illustrates that what was historically progressive under capitalism, that is, the creation of a world market and the incorporation of all the countries of the world into this market, is going into reverse and that there are more and more countries whose relation to the world market is extremely marginal.

As Tony said in his introduction, this is leading to growing development of an anti-imperialist sentiment. What Peter said about Pakistan and about the peasants in the South Punjab was very interesting. And these peasants weren’t just saying in a general way: “down with imperialism” or even “down with US imperialism” or something like that. They were saying “down with the IMF, down with the World Bank”. And they were absolutely right, because the IMF, the World Bank and the World Trade Organizations are increasingly the instruments through which the imperialist countries maintain their domination over the countries of the Third World.

What the Swedish comrade said in his intervention is true. The situation in the Third World is such that there is no end to the perspective of continual conflict, wars and repressive regimes. And therefore, whatever repressive legislation is adopted, whatever racist immigration laws there are, however high the wall they attempt to build, for example, around Europe, that will not stop immigrants from those countries trying to come into the advanced capitalist countries. And the CWI has to fight for the right of those immigrants to have work and residence permits, to have civic rights and social security, not to be used as a source of cheap labor with no rights and in constant danger of deportation.

It is no accident that most of our sections in Europe are involved, or have been involved, in campaigns against racist immigration laws and particularly in defense of the right of asylum which has systematically come under attack in the whole of Europe.

The fifth question that needs to be taken up is the question of relocation. This is a phenomenon which exists but which has been enormously exaggerated from an ideological/political point of view by the ruling class and by the reformists. To say to workers in Europe that their jobs are under threat because of workers in low-wage economies in South East Asia is not only a way of seeking to divide the working class: it is also to a very large extent untrue.

As the German comrade pointed out, jobs in the advanced capitalist countries are not being transferred, they are being lost, they are being suppressed. They are being suppressed through the destruction of traditional industries and their replacement by new hi-tech industries which employ less workers, and they are being suppressed by gains in productivity. The fundamental reasons for unemployment in the advanced capitalist countries are internal to those countries and not due to any threat from, for example, South East Asia.

Only 20 percent of the costs of production are labor costs. For example: when a product leaves a factory in South East Asia, it costs $1. When it arrives on the American market, it costs $4. At least three-quarters of the cost of that product comes not from wages but from costs of distribution and services between the point of production and the point of sale. And as the Financial Times pointed out recently, some Asian companies are beginning to realize it is easier, rather than trying to shave five cents off the dollar paid in wages, to try to get 20-30 cents off the costs of distribution and services. And when capitalists decide to invest, to build a factory, they are not just looking at labor costs. They are looking at having a skilled workforce; they are looking at having a good communications infrastructure, financial infrastructure, and they are looking for political and economic stability in the country. They are also looking for proximity to the markets where they are going to sell their products. The director in Britain of Samsung Electronics, explaining why Samsung has decided to build a new factory in Britain, didn’t say that lower wage costs were the main reason, although they are a secondary reason. He said: “The most important attraction is access to the European marketplace.”

This is further demonstrated by the example that Tony cited, of Korean capital establishing a car plant in Botswana, Southern Africa. It is establishing that plant there not only because of the low wages, but because of easy access to the South African market. And investment is taking place, for example, in some of the Eastern European countries, particularly in Poland and in the Czech Republic, for the same reasons. There are lower wage costs compared to Western Europe but the other conditions are also present, and in particular easy access to the markets for those products.

In fact, if all the factors are taken into account – infrastructure, political stability, attitude of the working class, a skilled workforce – there are actually more reasons for establishing and investing in new plants in the lower wage areas of the European Union than outside it. And Britain, to take just that example, is attracting more and more foreign investment, not just because it is a relatively low-wage economy within Europe, but because of all the other factors, and particularly because of access to the European market.

There are of course exceptions. Take, for example the producer of sports equipment, Nike. This company employs less than 500 workers in the US, who simply design the products. The designs are then transmitted electronically to a factory in Taiwan which makes the prototypes. And the actual production takes place in South East Asia or in China: production is shifted around to find the lowest wage costs possible. That is possible with labor-intensive industries rather than with capital-intensive industries. But the increasing introduction of new technology, even within such labor-intensive industries as textiles, actually makes it less likely that production will be relocated in countries whose main advantage, from a capitalist point of view, is the availability of cheap labor.

The sixth question: it is obviously the case today that there exists a global financial market. There are large sums of money capital available for all kinds of speculative investment. But it would be wrong to imagine that there is on the one hand good industrial capital which is productive and which creates jobs and which creates value and bad speculative financial capital. It is the same capital. For example, since 1980, 18 of the biggest industrial groups in France have either established or acquired banks. And the money capital does not come from nowhere – money does not produce money. In the beginning, it comes from the production of surplus-value and lives parasitically on this surplus value. But the fact that more and more money capital is used in a speculative way, for example by investing in futures and derivatives, creates a very fragile international financial system. This is a source of concern to serious bourgeois observers.

A year ago the Economist ran an article entitled: “Where a slump could start”. The place was Japan and the reason was the fragility of the Japanese financial system. Twelve months later, there has not been a slump and it did not start in Japan. But last week, the same magazine ran an article about the possibility of a Wall Street Crash, and this is reinforced by the present heavy fluctuations on Wall Street. Of course we shouldn’t be like the different sects who are constantly predicting the imminent collapse of capitalism and using it as a means of motivating people. Nevertheless, when serious bourgeois observers are constantly analyzing the possibility of a major financial slump then the CWI should be prepared for that kind of development.

The last point to take up is the one made by the Austrian comrade, when he raised the possibilities of a new period of capitalist expansion in the former Stalinist states of Eastern Europe and the former Soviet Union. Today, not even many capitalists think that is possible. At various times they have tried to convince themselves that a new period of expansion was possible through the opening of the Chinese market or through the development of the East Asian economies. as for the countries of Eastern Europe, they are now in the process of being absorbed into the world capitalist economy, but absorbed into a world capitalist economy which is in crisis and stagnation. There is not the possibility of a real period of expansion arising on that basis, but simply the kind of development we have indicated in relation to Eastern Europe and the European Union.

It is very difficult to imagine any kind of stable integration of Russia into the world economy. In a general sense, for capitalist expansion, for the accumulation of capital to take place, more than capital and workers are needed – so are markets. Goods need to be produced cheaply and they have to be sold afterwards. This is the Achilles heel of the idea that China offers a way forward for world capitalism.

Is it possible for one country to resist the pressures of the world market and the political pressures of imperialism and the imperialist institutions? In a general sense the answer is no. The tendency is for countries and governments to knuckle under to the pressure of the world market and imperialism. But there are exceptions. For example, South Korea is not yet a member of the OECD, although economically it is much more powerful than several of the existing members. And it is not yet a member because it is refusing, up to now, to give in to the dictates of the OECD in terms of opening up and liberalizing the Korean market, and particularly the agricultural sector. It is doing that to defend Korean firms, but also quite explicitly for fear of the social and political consequences of allowing that kind of liberalization.

China is now starting to say: “We want foreign investment, but we don’t want any old foreign investment. We don’t just want foreign investment in labor-intensive industries, we want foreign investment in hi-tech industries. And we don’t just want investment in the coastal zones, we want investment in the interior as well because we are afraid of the social consequences of this dual economy that is developing.”

There is a conflict between the Indonesian government on the one hand and General Motors and Toyota on the other. The Indonesian government is talking about subsidizing a “national car” which will be built in Indonesia, with the participation of Korean capital. This is completely counter to free market liberal policies. It is also obvious that there are strong protectionist tendencies in Russia.

The overwhelming tendency is for all those resistances to the neo-liberal order to be broken down due to the pressure of the world market and the political pressure of imperialism. But those counter-tendencies exist, just as the germs of protectionism which exist in the regional trade blocs. And under conditions of an economic downturn, a return to protectionism, not exactly national autarchy, but at least regional self-sufficiency, is quite possible. And although re-nationalization in the Third World is not exactly excluded, what is much more possible is what the Austria comrade talked about, which is state intervention to support industries by means of subsidies and government contracts.

Finally, it needs to be underlined that although we can identify and analyze the process of globalization, we shouldn’t imagine that it will go on forever and that it is irreversible. The history of the 20th Century goes against such a view. In the same way, although there is no stable prospect of Keynesian policies or left reformism, that does not mean there will be no attempts at reformist strategies in the medium term. In a situation of crisis and with mass pressure from below there will be a development of reformism. In the meantime, as the French comrade said, it would be a big mistake to think that because there is a process of bourgeoisification of the workers’ parties, and because of the sharp shift to the right of the trade union leaders, reformism is going to disappear. On the contrary, reformism is still there and is still the major obstacle to a working-class fight-back against the capitalist offensive.

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