Globalization and Capitalism

S A Hamed Hosseini                                                                                      25-March-2010

Cite this piece: Hosseini, S. A. (2010), Globalization and Capitalism [online]. Available: https://globalalternatives.wordpress.com/2010/03/27/globalization-and-capitalism/, [Accessed xx/xx/20xx].

The globalist theories of globalization have not only been criticized for their ambiguous definitions of globalization (as an unrealistic concept that fails to grasp the multidimensionality and plurality of reality) but also for their underlying ideological assumptions. Globalization has not only been used by these theories to describe the very complex reality of global change in a simplified and reductionist way but it has also been employed as an ideal that ought to be realized. In contrast, ‘globalization’ is considered mostly by many critics as nothing more than a new brand for ‘capitalism’ used by the elite in order to provide the world with a new justification for their very exploitative post-Cold War projects. Although such a radical view has its own limits (i.e. equating globalization with capitalism and overestimating the economic dimension of globalization), it has, however, a merit when we consider the role of capitalism in directing many globalization processes. Though many global changes cannot be solely explained in terms of capitalist economic relations, one cannot ignore the role of capitalism in shaping the current world order.

One of the most recent events that drew attentions to the role of capitalism was the globalization of financial crisis in 2008-2009. The economic aspect of many global changes remains highly prominent and requires significant attention. In other worlds, this aspect cannot be underestimated simply because globalization processes are multidimensional. Indeed, the economic transformations that the world has experienced in the last few decades are so central to global changes, as these have affected the very basic aspects of social life among billions of people.  The key question of how far the world has become integrated can be narrowed in this week to only focus on the world economy. Therefore, the question that can be raised is to what extent the world economies have become integrated into one single economic system (i.e. capitalism).

Similar to the previous week’s discussion of theories, controversies around this question extend from market globalists on one side of spectrum to skeptic internationalists on the other side. This question may look poor and even misleading if not enough attention is paid to the nature of economic integrity, inequalities and the role of different forces in pursuing their interests. There is no doubt that capitalism is the most vigorous and important force behind many economic and political global changes. Although there are different types of capitalism[i] and these capitalist systems differ in various ways, we can still define capitalism by drawing upon the very common features of these systems. Exploring the links between globalization processes and capitalism would help us to avoid assuming that globalization is a natural phenomenon or there is no one responsible for current global changes. As expressed by McMichael (2004: 157), “if competing in the world market requires policies reducing public expenditures that may lower national standards of employment, health care and education, then globalization is a political, not a natural phenomenon.”

According to Oxford English Dictionary, capitalism is “a system of wage-labor and commodity production for sale, exchange, and profit, rather than for the immediate need of the producers. What has impressed students of modernity is the huge and largely unregulated dominance of capitalist enterprise (with its related monetary and market networks) across political and cultural frontiers”. This definition emphasizes the ‘globality’ of capitalism, as a system that is based on unregulated profit making activities across frontiers for the purpose of more production, more exchange and therefore more profit (rather than for subsistence). Therefore, in this system, capital is the principal means of production. However, capital cannot produce profit (surplus value) merely by relying on the mass production. Here it comes the role that market can play in order to secure the surplus value. Surplus value is gained through selling the products or services above the costs of production and distribution. The underlying assumption in this definition is that capitalism is a system based on profit making through the expansion of production, consumption, as well as commercial and financial networks.

Accordingly, six common features can be attributed to capitalist systems: (1) capitalism requires a great capacity for mass production and mass consumption in order to create accumulative surplus value which can be later turned into capital in order to maintain or even reinforce such a capacity; (2) capitalism requires division of labor/expertise among a set of interdependent sectors that are not self-sufficient in realizing their needs; (3) capitalism relies on extensive trade and commodity relations through which the transfer of goods, services and finance is facilitated at the lowest possible costs; (4) the system also requires flexible monetary/financial structures for facilitating the exchanges and capturing the surplus value and accumulate it in the form of money, credits, stock, or even virtual accounts; (5) a private property system secured by the law and a stable political system are needed whereby individuals can own and transfer land, commodities, capital and other means of production; and (6) labor in capitalist systems is treated as a commodity which can be exchanged in a labor market and it is valued based on the demands and supply as well as the balance of power between employers and employees.

Regarding the above mentioned features of capitalism, there is an intrinsic tendency among the actors in such a system to maximize their profit through reducing costs, playing greater roles in markets or expanding their shares of market, predicting and manipulating values (of currencies, shares, stocks, etc.), producing a suitable consumer culture among people through propagating materialist values, ideals and life styles. Therefore, capitalism has a significant tendency towards globalization (i.e. expanding its rules and relations across the world). This was obvious from day one, that is the colonization period when global trade expanded rapidly; furs, timber and fish from Canada, slaves and gold from Africa, sugar, rum, coffee, meat and minerals from Latin America, opium, tea and spices from Asia were being traded in massive scales.

The colonized societies had no authority in controlling the trade that was mostly carried out by the powerful companies (like the British and Dutch East India companies) whereas the political borders were not established and recognized by any international law. Hence, this period must be considered as the golden age of globalization or globalism. However, this early age of capitalist globalization ended in extensive and violent rivalries between colonial powers, two world wars and a great recession in between. The second period in the history of global capitalism started just after the end of World War II, when new international institutions (like the UN) were established to secure a stable world order among former colonial powers and a growing number of recently independent countries.

A new mode of capitalism (known as Welfare State, protectionist or social democratic capitalism) emerged which stressed on the role of the state in safeguarding societies from unregulated, excessive and irresponsible extension of market capitalism and the exploitation of workers. As mentioned by John Maynard Keynes, a famous economist who formulated the new mode, “the decadent international but individualistic capitalism in the hands of which we found ourselves after the war is not a success. It is not intelligent. It is not beautiful. It is not just. It is not virtuous. And it doesn’t deliver goods”. Such a welfare oriented capitalist system managed and planned by the state was necessary in order to deal with the threat of communism (as a rival and alternative system which was promising justice and equality), to curtail the chance of further worldwide wars among powerful states, to reconstruct the infrastructures which were demolished during the WWII and to reduce the risk of internal crises in advanced societies caused by enormous inequalities and the growing working class oppositions.

This era can also be marked as the era of internationalization (or deglobalization) as many of the former colonized societies, overwhelmed by strong nationalist sentiments from within, became rather autonomously involved in an international system where they could plan how they wanted to develop their economies. However, many of these societies aimed to become independent in terms of realizing their basic needs and building up their fundamental but expensive infrastructures (such as heavy industries, water supplies, public health provision, public transport, and energy production) whilst they did not have the required skills, technologies, and resources thanks to their long histories of colonization. Therefore they had to heavily rely on loans and aids from the new international financial institutions (known as Bretton Woods institutions) which were organized and planned by the Western powers. Attached to these loans and aids were blueprints for development.

Third World countries were supposed to copy the First World as successful models. Many of these societies however experienced slight reductions in their inequalities due to rather fair land reforms and social democratic policies as well as reasonable growth caused by investments in their infrastructures. This era finally ended in a worldwide debt crisis and recession caused by the 1970s oil shock, rapid decline in the values of commodities mostly produced in the Third World as well as the destabilized value of dollar (initiated by the decision of the US in 1971 to stop fixing the price of dollar). The 1970s crisis questioned the efficacy of Welfare State as a very costly and ineffective mode of capitalism that discourages growth and foreign investments.

A new generation of economist and politicians started to argue for the value of economic deregulation, free trade and therefore the revitalization of classical economics. The rise of conservative politics in the US and the UK facilitated a radical change in the international economic policies and the role of Bretton Woods Institutions (i.e. the World Bank, the IMF and the GATT). Economy was conceived too complex to be centrally planned. The privatization of public enterprises, the deregulation  of economic and financial relations, the liberalization of trade and industry, the reduction of public expenditures (including social spending), downsizing the government, cutting taxes as well as individualizing the industrial relations (i.e. contracts between employers and employees) have been among the major policy recommendations by the rising neo-classical (neoliberal) ideology.

The collapse of communist camp by the end of the 1980s boosted the neoliberalist confidence in the necessity of economic liberalization. While the welfare state in the developed world started to shrink, the international agendas of independent economic development for the Third World were gradually replaced with the idea of integration into the world free trade system regulated by the World Trade Organization. In the 1990s, the integration of former communist world to the capitalist markets as well as the invention of new Information and Communication technologies provided the neoliberal capitalism with a new opportunity to become rapidly and massively globalized once again. The size of world economic growth (FDI, stock prices, GDP etc.) was so immense during the 1990s that some analysts became convinced of the possibility of growth without end or growth without inflation. Many corporations and businesses used the Internet in order to expand their markets and many even become totally internet based. These dotcom companies experienced large-scale growth in their income. However, the new golden age of capitalism did not last long.

The first signs of systemic vulnerability emerged during the 1997-1998 Asian financial crisis when financial deregulation in this region (already known for its fast miraculous advancement) proved to be a real threat to the stability of growth. Then the dotcom bubble burst by the end of the decade and the corporate bankruptcy of giant corporations (like ENRON, Qwest, Tyco International, Alpha Communication, and WorldCom) in 2000 proved how far arrogance, dishonesty and greed have become norms in the lack of democratic regulations, legislations and corporate transparency. In 2001, an allegedly successful Latin American country that comprehensively adopted the neoliberal policies during the 1990s faced a momentous crisis. Finally, the 2008 global financial crisis (GFC) and the collapse of Wall Street challenged the basics of neoliberalism and market capitalism. “Market needs morality” was heard once again from many authorities who used to be the big fans of extensive liberalization.

It seems that the globalization of capitalism has entered into a new phase where neoliberal policies are not considered as the only viable options. Governments across the developed world have started to tighten regulations slightly and use stimulus packages in order to save jobs and the economy by investing in infrastructures. However, most of these new state interventions are designed in order to save big businesses and big banks through either directly bailing them out or providing them with more funds (mostly borrowed from overseas) and new contracts to seek their contribution in enhancing the infrastructures. This can hardly be compared with the post-WWII welfare state, as new policies still favor the private sector to the public while it has become the public’s responsibility to save the private sector through taxing the current and future generations.

In analyzing the dynamics of capitalist globalization, one must also pay attention to the following factors:

  1. The growing power of multinational corporations (MNCs): MNCs are defined as entities that control economic activities in more than one country, fragment production according to the comparative advantages of each host country and shift resources, capital, products, and services between their segments across these countries. These corporations have been heavily involved in the internationalization of production, division of labor and flows of FDI. By 2002, MNCs were accounting for 70 percent of the world trade, 70 percent of FDI, 25 percent of World production, 80 percent of skill and technology exchanges. They exercise enormous power and many social, ecological and ethical concerns have been raised around their activities especially in the Third World.
  2. The colossal growth of global financial market (known as casino capitalism) to the point that today less than 5 percent of foreign exchanges relates to transactions in real goods or for every dollar in trading goods, 9 dollars are gambled in foreign exchange markets. The size of these markets has been growing from 16 billion dollars a day in 1973 to 3.3 trillion dollar a day in 2007 and 2.5 trillion dollar a day in 2009. These markets (including the stock markets) have very chaotic, unpredictable and destabilizing effects on the rest of the world economy as they deeply depend on speculations rather than planning. The introduction of derivatives to these markets has added more uncertainty that finally contributed to the collapse of Wall Street in 2008. Derivatives are the financial contracts (like mortgages) that can be bought and sold between financial institutions.
  3. The globalization of capitalism has also been highly dependent on regional Free Trade Agreements (in harmony with the rules of World Trade Organization), the Trade Related Investment Measures (TRIMs), the Trade related Intellectual Property Rights (TRIPs), the General Agreement on Trade in Services (GATS), Agreements on Agriculture (AoA) as well as Loan Policies.  [Make yourself familiar with each of these mechanisms which have been used to secure corporate activities across the world and their social impacts by reviewing the relevant literature]

The following propositions try to briefly explain the status of the world economy in terms of the level of integration and the role of capitalism. Read these paragraphs and try to link them to the readings especially the three main theoretical perspectives:

  1. The world economy has become significantly globalized in the last 2-3 decades in comparison to the immediate post WWII decades.

–        This has happened in terms of FDI, international trade resulting from lower trade barriers, international communications due to cheap and competitive electronic technologies, and cheaper international transport;

–        Larger proportions of manufactured goods, mining products, and agricultural goods in advanced societies have been exported;

–        Production has become trans-nationalized. Sixty percent of the value of personal computers consists of imported components;

–        The US investment outflow rose from 7% ( in 1960) to 20 % (in the mid 90s)

–        In 2000, telephone trafficking increased to 10 billion minutes a day, while 44% of computer users could log on the Internet.

  1. However, the globalization of world economy is still not significant in comparison to the amount of economic activities within the nation states and regions; Economic globalization has been selective rather than inclusive.

–        States and local communities still have the agency to embrace or resist change

–        Governments still exercise great authority to regulate or deregulate and to redistribute the benefits and losses

–        There is a growing demand for redefining welfare states instead of weakening them

–        There are main regional trading blocs: NAFTA, EU, ASEAN+ Japan + AusNZ (significance of intra-regional trade is growing) instead of one global block.

  1. Different aspects of capitalism have been globalized to different extents, affecting different societies and regions in various ways

–        Flows of capital, knowledge, and technology are still significantly limited to the North

–        Flows of labour are still confined within the South to a great degree

–        Flows of goods and services are unevenly expanded across the world

–        Liberalization of markets, privatizations, deregulation and other structural adjustments have been widely adopted. However, these policies are adopted and adapted by different countries in different styles and degrees. These policies in many cases have created social insecurities, instabilities and inequalities and therefore oppositions. Many Latin American societies have started to turn left in the 2000s.

  1. Capitalism as a political-economic system has extended its reach across the world, but has also diversified at the same time according to the pre-established institutional, social, political, and cultural settings in different societies.
  1. Benefits of reform by adopting neoliberal policies is not equally shared but rather limited to the highly advanced societies. However, the losses, costs, crises, and problems associated with these reforms are mostly imposed on the less developed societies. Within these societies, the benefits of adopting export-oriented policies and market economy have not been shared equally.

Finally, in conclusion:

    1. The global expansion of trade is uneven. Globalization of capitalist economy has reached its limits. However, this is not chiefly because of a serious opposition to global capitalism by the governments in the less developed world in order to save their public autonomy against forces of globalization. It is, in fact, because many third world societies have adopted the same logic used by the advanced capitalist societies.
    2. If the world has not become fully and fairly integrated, this is mainly because of the capitalist tendency towards monopolizing the globalization of trade and production. Capitalism has always had a tendency to go global, but this tendency has always been associated with maximizing profit through uneven trade relations. This can be called the capitalism’s hypocrisy; a utilitarian logic which is also adopted by the elite in the third world and has caused a conflict of interests.
  • All nations are equal but some nations are more equal!
  • All nations are free to choose but some nations are freer to choose!

McMichael, P. (2004) Development and Social Change: A Global Perspective, Thousand Oaks, Calif; London: Pine Forge Press.


[i] There are various capitalist systems with different dynamics such as agrarian capitalism, industrial capitalism, market capitalism, cybercapitalism, entrepreneurial capitalism, American capitalism, Scandinavian, European, Japanese, and even Chinese communist capitalism (!).

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: